Ashish Mittal
Introduction:
On account of budget session held recently on 1st Feb. 2019, Our Hon’ble Finance Minister Shri. Piyush Goyal Ji (in place of Shri. Arun Jetley Ji) in esteem leadership of Our Hon’ble Prime Minister Shri Narender Modi Ji has carried out various amendments in existing direct and indirect tax law along with sanctioning various project and extending the benefits to various low and middle class persons. To study the effect of the same, we would study the impact analysis of the same in relation to Direct tax law wherein various illustration have been taken to compare the same from earlier Assessment Year.
Page Contents
A. Rates of Income tax & Rebate U/s 87A (AY 2019-20 Vs. FY 2020-21):
At the outset, it is very important to address a common interpretation mistake made by most of us regarding the increase in slab rate of income tax. In the speech the finance minister have clearly mentioned that there is no change in the Slab rate of Income tax but still 100% tax rebate is granted upto income of Rs. 5 Lac. Thus, it means that the slab rate is the same instead the rebate allowed has been increased from Rs. 2,500 to Rs. 12,500.
To Summarize & understand the same in tabular manner:
| Particulars | A.Y.-20-21 | A.Y.-20-21 | |
| Slab rate | No Change | No Change | |
| Rebate U/s 87A | Amount | 2500 Or Income Tax Payable | 12500 Or Income Tax Payable |
| Condition | Taxable Income after Chapter VI deduction (i.e. 80C to 80U) is less than 3.5 Lac | Taxable Income after Chapter VI deduction (i.e. 80C to 80U) is less than 5 Lac | |
B. Standard Deduction for Salaried & Pensioner:
In the last year budget, Finance ministry has extended a benefit to the salaried class of assessee in form of Standard deduction amounting to Rs. 40K which have been further revised to be increased to Rs. 50K.
To Summarize & understand the same in tabular manner:
| Particulars | A.Y.-20-21 | A.Y.-20-21 |
| Standard Deduction from Salary U/s 16 of Income Tax’ 1961 | Deduction- Rs. 40K
Or Salary Amount Lower of two |
Deduction- Rs. 50K
Or Salary Amount Lower of two |
Now to illustrate the same, a numerical example with notional figures are taken to understand its effect.
Illustration: 1
| Effect of Change in Standard Deduction and Rebate U/s 87A as compared to last year | |||
| Particulars | A.Y.-19-20 | A.Y.-20-21 | Effect |
| Gross Annual Income/Salary (with all allowances) | 700,000 | 700,000 | – |
| Standard Deduction for Salaried & Pensioner | 40,000 | 50,000 | Additional Deduction of Rs. 10K allowed in Budget |
| Gross Taxable Income | 660,000 | 650,000 | – |
| Deduction U/s 80C | 150,000 | 150,000 | – |
| Taxable Income | 510,000 | 500,000 | – |
| Tax Amount | 14,500 | 12,500 | Rebate of Rs. 12.5K allowed in budget if Net taxable Income is less than equal to Rs. 5 Lac |
| 12,500 | – | ||
| Net Income Tax Payable | 14,500 | – | – |
| Edn Cess + Health Cess @ 4% | 580 | – | – |
| Total Tax Payable | 15,080 | – | – |
The above illustration clearly show the effect and benefit granted to the assessee. Now continuing to the same amendment in the same A.Y. after amendment the income of the assessee is increased only by Rs. 1 then, it has huge implication on the tax burden on the assessee. The same can be shown with help of example.
Illustration: 2
| Effect of Change in Standard Deduction and Rebate U/s 87A with slight increase in Income | |||
| Particulars | A.Y.-20-21 | A.Y.-20-21 | Effect |
| Gross Taxable Income | 650,000 | 650,001 | – |
| Deduction U/s 80C | 150,000 | 150,000 | – |
| Taxable Income | 500,000 | 500,001 | – |
| Tax Amount | 12,500 | 12,500 | Rebate of 12.5K allowed in budget if Net taxable Income is less than equal to Rs. 5 Lac |
| Rebate U/s 87A | 12,500 | – | – |
| Net Income Tax Payable | – | 12,500 | – |
| Edn Cess + Health Cess @ 4% | – | 500 | – |
| Total Tax Payable | – | 13,000 | With Slight Increase in Income by Rs. 1 the Tax Amount comes to Rs. 13,000. The Govt. here has played a masterstroke thereby covering those assessee who are due to any obligation say due to taking bank loan earlier was paying taxes amounting to Rs. 1,000 to Rs. 1,500 & calculating the income accordingly. Now the tables are turned either the assessee may pay Zero tax or have to pay Rs. 13,000. This might be a Govt. Strategy to cover the greater audience. |
Now the Question Arises, whether the benefit of marginal relief would be given to the assessee as is given in case of surcharge?
Although the same is not yet answered by law, but the intention of law makers is clear that they want to give relief of either 100% tax or Pay tax amounting to Rs. 13,000. Thus, it is a honey trap to those assessee who are not showing their correct income. Thus, accordingly it is not possible to grant them benefit of marginal relief.
C. Income Under the Head House Property:
1. Amendments have been carried out under this head, with clear cut moto. The Finance Minister have clearly mentioned that currently assessee having to maintain to houses in the country due to their Job/Business. To give benefit to them assessee may now show two house property as self-occupied instead of showing one house property as self-occupied. Thus, now the assessee can save tax second house as well.
Further, in continuation of the same a consequential amendment is made wherein it has been specified that the benefit of Interest on Loan of Rs. 2 Lac, shall be seen on both house but consolidated and not individually. Further the benefit is extended for both the self-occupied house.
Illustration: 3
Effect of Change in Provision of Deemed Rent Under the Head House Property |
|||||||||
Particul-ars |
A.Y.-19-20 |
A.Y.-20-21 |
Effect |
||||||
Self-Occupied |
Notional Rent |
Notional Rent |
Total |
Self-Occupied |
Notional Rent |
Self-Occupied |
Total |
||
House-1 |
House-2 |
House-3 |
House-1 |
House-2 |
House-3 |
||||
Value of Rent |
480,000 |
360,000 |
400,000 |
1,240,000 |
480,000 |
360,000 |
400,000 |
1,240,000 |
– |
Gross Annual Value |
– |
360,000 |
400,000 |
760,000 |
– |
360,000 |
– |
360,000 |
Additi-onal Benefit Extend-ed, as of Now two house can be shown as Self Occupi-ed |
Less: Munici-pal Taxes |
– |
18,000 |
20,000 |
38,000 |
– |
18,000 |
– |
18,000 |
– |
Net Annual Value |
– |
342,000 |
380,000 |
798,000 |
– |
342,000 |
– |
378,000 |
– |
Less: Deduct-ion U/s 24 |
– |
– |
– |
||||||
Statuto-ry Deduct-ion @30% U/s 24 (a) |
– |
102,600 |
114,000 |
216,600 |
– |
102,600 |
– |
102,600 |
– |
Interest on Loan U/s 24 (b)
|
(56,000) |
– |
– |
(56,000) |
(56,000) |
– |
(114,000) |
(170,000) |
Deduc-tion of Intere-st on Loan allow-ed now for two self-occupi-ed house proper-ty |
Income Under the hea-d House Proper-ty |
(56,000) |
239,400 |
266,000 |
637,400 |
(56,000) |
239,400 |
(114,000) |
445,400 |
– |
2. Further finance minister also extended the time period for treating the unsold stock of constructed building to be treated as self-occupied and subsequently notional rent is payable on the same. So it is being extended from 1 year to 2 year.
D. Income Under the Head Capital Gain:
In Sec. 54 of Income Tax’ 1961, earlier there is exemption from Long Term Capital Gain Tax if the one residential house property is sold and another house property for residential purpose is purchased.
In the Finance Act, 2019 the finance minister proposes to extend this facility by allowing the assessee to sell once house for residential purpose and invest the same in two house property for residential property. This amendment was made with clear objective of granting the benefit to those joint family which gets separated and two separate houses are being made out of the proceeds.
Key Points:
1. Available once in a life time of assessee.
2. Applicable only if the LTCG is Upto 2 Crs.
3. Purchase and sale of only Residential House property.
4. Deduction for investment in both property allowed subject to 2 Cr. Limit.
Illustration: 4
| Effect of Change in Provision of Deemed Rent Under the Head Capital Gain | |||||
| Particulars | A.Y.-19-20 | A.Y.-20-21 | Effect | ||
| Case-1 | Case-2 | Case-1 | Case-2 | ||
| Sales Proceed | 100,000,000 | 200,000,000 | 100,000,000 | 200,000,000 | – |
| Less: Indexed Cost Acquisition | 65,000,000 | 129,000,000 | 65,000,000 | 129,000,000 | – |
| Less: Indexed Cost Improvement | 20,000,000 | 40,000,000 | 20,000,000 | 40,000,000 | |
| LTCG | 15,000,000 | 31,000,000 | 15,000,000 | 31,000,000 | – |
| Less: Deduction U/s 54 | 7,500,000 | 7,500,000 | 12,500,000 | 7,500,000 | Benefit Extended where, LTCG is Upto 2 Cr. And Invest-ment made in two house property, But only once in a lifetime |
| House-1- Invested- Rs. 75 Lakh | – | ||||
| House-2- Invested- Rs. 50 Lakh | |||||
| Income Under the head House Property | 7,500,000 | 23,500,000 | 2,500,000 | 23,500,000 | – |
E. Amendment Under Sections of TDS:
The finance minister targeting the household women and senior citizen extended the limit for deducting TDS under Se. 194A from 10K to 40K. Further also the limit for deducting TDS on rent has been increased from 1.8 Lac to 2.4 Lac.
The same can be summarized below:
| TDS Under Sec. | Rate of Tax | A.Y.-20-21 | A.Y.-20-21 |
| 194A | 10% | Earlier Interest on Deposit with banking Co/ Post Office was exempt upto Rs. 10K after that TDS @ 10% was deductible | Now Interest on Deposit with banking Co/ Post Office is exempt upto Rs. 40K after that TDS @ 10% was deductible |
| 194I | 10% | Earlier there was no TDS upto Rs. 1.8 lac of annual rent | Now there is no TDS upto Rs. 2.4 lac of annual rent |
(For any clarification or suggestion Author can be reached at Email Id.- ashishmittal5555@gmail.com)
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