Recently Budget 2019 has left taxpayers perplexed whether it will reduce tax burden or increase it. But the words of the Interim Finance Minister Piyush Goyal ‘India is back on track and marching towards growth and prosperity.’ suggested the intention to attract middle class thereby acknowledging the contribution of taxpayers. To express his gratitude and to pass on the benefits from the various tax reforms brought over the years, the finance minister proposed to reduce the tax burden on the middle class taxpayers.

Here is how Individual taxpayer is benefited in different ways.

1. Standard deduction in respect of Salaried employees has been raised from Rs 40000 to Rs 50000:

The concept of standard deduction was earlier abolished in Finance Act 2015. However The Finance Minister Arun Jaitley reintroduced Standard Deduction in Budget 2018 thereby benefiting the salaried class. The ’Standard Deduction’ of Rs 40,000 replaced the transport allowance Rs. 19200 and medical reimbursement of Rs. 15,000 per annum. This benefits those taxpayers who do not avail these allowances. Now the interim budget has proposed the increase of limit by Rs 10000 in standard deduction. Thus the hike in the limit of standard deduction is proposed from Rs 40000 to Rs 50000. Due to absorption of transport allowance and medical allowance it was not much beneficial earlier. Thus the increase in the limit of standard deduction is a welcome move.

Here’s a look at how will it reduce the tax burden

Particulars Until AY 2018-19 From AY 2019-20 From AY 2020-21
Gross Salary (in Rs.) 8,00,000 8,00,000 8,00,000
(-) Transport Allowance 19,200 Not Applicable Not Applicable
(-) Medical Allowance 15,000 Not Applicable Not Applicable
(-) Standard Deduction Not Applicable 40,000 50,000
Net Salary 7,65,800 7,60,000 7,50,000

From the above, it is evident that the taxable salary has come down on account of the standard deduction

2. Full tax rebate for individuals having taxable income upto Rs 500000 :

The rebate was the much talked about topic right after the Budget speech of Interim Finance Minister Piyush Goyal. The interim budget has proposed to give full tax rebate to individuals having income up to Rs 500000. Till now, those earning up to Rs 3.5 lakh a year were eligible for a tax rebate of Rs 2,500. This year it has been proposed to hike this from Rs 2,500 and raised the eligibility to Rs 5 lakh. Only low income earners will gain by this as high income earners will be out of the purview of rebate criteria.

Regarding the senior citizens, TDS threshold has been raised to Rs 50000 for those ages above 60 in last year’s budget and very senior citizens have a basic exemption limit of Rs 5 lakh. So this rebate will not affect senior citizens at all.

Here’s a look at how will it reduce the tax burden

Particulars Pre-Budget Post-Budget
Income from Salary 5,50,000 5,50,000
Less : Standard Deduction -40,000 -50,000
Taxable Salary 5,10,000 5,00,000
Income from Salary 5,10,000 5,00,000
Tax on above 15,080 0

From the above, it is evident that rebate is available upto 5 Lac and above it there is no rebate however only benefit of deduction is available.

3. Increase in TDS threshold on interest on bank and post office deposits from Rs 10000 to Rs 40000 :

The increase in TDS threshold on interest on bank and post office from Rs 10000 to Rs 40000 is more convenient to tax payer due to reduction in compliance of depositing form 15G and later claim refund by filing return. It implies that bank and post office will no longer deduct any tax if the interest income from your deposits is up to Rs 40,000, as opposed to Rs 10,000 earlier. Further this does not means in any way that it will reduce the tax burden as this interest amounts will continue to be added to aggregate income of tax payer while filing income tax return. Taxpayers still have to declare this interest income under income from other sources in their Income Tax Returns, despite paying TDS for it. They have to claim it back as deduction from gross total income under Section 80TTA of the Income Tax Act. We can say that this will help those classes of taxpayers who are small depositors and house wives as most of them have low or no income but have interest income on bank deposits and post office deposits.

Regarding senior citizens it will not much affect them as the threshold limit was earlier increased to Rs 50,000 for interest income on bank and post office deposits and also tax exemption limit was also increased in the same. This means that seniors above 60 years, whose incomes do not fall within the taxable limit, don’t need to submit Form 15H to banks and post

Offices if their interest income is up to Rs 50,000.

4. Section 54 Capital gain exemption now extends to two house properties (Once in a life time):

Capital gains tax exemption under section 54 of Income Tax Act is proposed to be extended to purchase of two house properties from one house property. This is applicable for capital gains up to Rs 2 crore. One can avail of this facility only once in life time.  Currently an individual or an HUF can claim exemption on long-term capital gains (LTCG) tax, under Section 54, arising on sale of a residential property, if the indexed LTCG is invested for purchasing another residential house, one year prior to or two years after the date of sale of the house, or for constructing a residential house within three years from the date of sale of the house.  Now the benefit will be allowed for purchase two house properties on sale of one property as well. This will be a big boost for real estate which was struggling from some time. Also it is big boon in a country like India in which investing in property is considered as major family estate planning.

Lets understand with the help of following example:

    House property sold and 2 house property bought
Particulars Amount (Rs)
Sale proceeds from old house property 2,50,00000
Less: Indexed cost 1,00,00000
LTCG on old House property sold 1,50,00000
Cost of new house 1 70,00,000
Cost of new house 2 60,00,000
Particulars Before Budget After Budget
LTCG 1,50,00,000 1,50,00,000
Tax exemption under Sec 54
               – House 1 70,00,000 70,00,000
               – House 2 Not allowed 60,00,000
Less: Total exemption 70,00,000 1,30,00,000
Taxable amount 80,00,000 20,00,000

Finance minister Piyush Goyal rightly said that tax-related budget proposals in the interim budget are aimed at helping poor and middle class living on a tight budget. Only the high income earners can escape liability by taking advantage of saving schemes. No new tax has been proposed to be introduced but only few rebates will boost the spending and help the economy.

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Qualification: CA in Practice
Location: JAIPUR, Rajasthan, IN
Member Since: 26 Jun 2018 | Total Posts: 1

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June 2021