What Taxes shall you pay for Financial Year 2019-2020 – A complete tax guide for income tax computation
In India, every year, the Finance Minister announces an annual Union Budget for the up-coming financial year.
According to Article 112 of the Indian Constitution, the Union Budget of a year (referred to as the annual financial statement), is a statement of the estimated receipts and expenditure of the government for that particular year.
Annual Union Budget keeps the account of the government’s finances for the fiscal year that runs from 1st April to 31st March.
However, during the transition period, when a new government is due to take over, an Interim Budget is presented by the outgoing government before the General Elections for Lok Sabha (held every five years).
The term ‘interim’ means temporary or for the time being. The Interim Budget contains detailed documentation of every expense to be incurred and every rupee to be earned through taxes in the coming few months until the new government comes to power. During the transition period, the ruling government needs the Parliament’s approval to extract money from the Consolidated Fund of India, where the government puts all its revenue.
When the election is around the corner, it is unrealistic for the ruling government to launch a regular Annual Budget. So it gets passed as an Interim Budget, consisting of full estimates of the revenue and expenditure and some policy measures too.
An Interim Budget differs from the Annual Budget in many ways. A Budget has two parts – the report of expenses and income in the previous year and the proposed expenses and income generation in the coming year.
As for the Interim Budget, the first part will remain the same. However, the second part will contain documentation of only basic expenses until the election. According to the Electoral Commission Regulations, the current government is not allowed to introduce any major policy changes, new rules or amendments that can influence the vote banks unfairly.
The year 2019 was an election year and therefore had an Interim Budget that was presented by Sh. Piyush Goyal before the end of PM Narendra Modi-led NDA government’s first term (2014-2019) and an Annual Budget (also known as Final Budget) that was presented by Sh. Nirmala Sitharaman after the Modi-led NDA government received a massive mandate to form the government once again (2019-2024).
On 1st February, 2020 the Finance Minister announced Union Budget for financial year 2020-2021. Everyone went busy discussing and interpreting the new provisions that were introduced by the said Budget.
Further, the COVID-19 breakout lead to a nation-wide lockdown for over 2 months.
All these happening made the people forget the taxes that they were to pay for the financial year 2019-2020.
This article is focused on highlighting the provisions of Budget 2019 based on which the people of India are required to pay their respective taxes for the previous financial year i.e. 2019-2020.
This article will act as a ready reckoner for tax computation, for all the people who would be filing their income tax returns on or before 30th day of November, 2020 (extended due date for filing income tax return as announced by the Finance Minster on 13th May, 2020 under the Special Economic Atmanirbhar Bharat Package) for the financial year 2019-2020.
BUDGET 2019 AND THE FINANCE ACT, 2019
As mentioned earlier, the year 2019 was an election year and therefore had 2 budgets i.e. the Interim Budget and the Annual or Final Budget. The amendments, additions, changes, etc. were made by both the Budgets.
First, we would take up the amendments, additions, changes, etc. that were made by the Interim Budget, 2019.
I. INTERIM BUDGET and THE FINANCE ACT, 2019
The Interim Budget gave many tax reliefs and exemptions to the small taxpayers’ i.e. middle class, salary earners, pensioners and senior citizens.
Let’s discuss these provisions in detail.
1. No tax payment on total income up to Rs. 5,00,000/- for individual resident taxpayers
An assessee, being an individual resident in India, whose total income does not exceed Rs. 5,00,000 shall be entitled to a deduction, from the amount of income-tax on his total income, of an amount equal to 100% of such income-tax or an amount of Rs. 12,500, whichever is less.
The government did not raise the tax-slab; however, it raised the limit of rebate of income tax under section 87A to exempt income tax on total income for a resident individual up to Rs. 5,00,000 w.e.f. 1st April, 2020 i.e. for the financial year 2019-2020.
As a result, of this relief, even persons having gross income up to Rs. 6,50,000 may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance etc. In fact, with additional deductions such as interest on home loan up to Rs. 2,00,000, interest on education loans, National Pension Scheme (NPS) contributions, medical insurance, medical expenditure on senior citizens etc. persons having even higher income will not have to pay any tax.
It is pertinent to note that
- this rebate is available to resident individuals only and not to HUFs.
- this rebate is only available when the total income does not exceed Rs. 5,00,000
2. Standard deduction for salaried individuals raised to Rs. 50,000
For salaried taxpayers and pensioners, Standard Deduction has been raised from the current Rs. 40,000 to Rs. 50,000 w.e.f. 1st April, 2020 i.e. for financial year 2019-2020. Thus, an additional tax benefit on income of Rs. 10,000 has been added.
ILLUSTRATIONS ON POINT 1 & POINT 2:
FIRST: Mr. A, aged 32, earned salary income of Rs. 8,25,000 for the financial year 2019-20. His employer deposited Rs. 1,00,000 in PF and he invested Rs. 50,000 in a 5 year tax saver fixed deposit with a bank. He also paid interest on loan of Rs. 1,00,000 taken for his self-occupied house. He also paid a premium for a family floater health insurance policy of Rs. 25,000.
What taxes shall Mr. A pay for the financial year 2019-20?
| Statement showing computation of Total Income of Mr. A and Tax payable thereon | ||
| Description | Amount (Rs.) | |
| Income under the head Salary | 7,75,000 | |
| Gross Salary | 8,25,000 | |
| Less: Standard Deduction | 50,000* | |
| Income under the head House Property | (1,00,000) | |
| Less: Interest paid on loan taken for self-occupied house | 1,00,000 | |
| Gross Total Income (GTI) | 6,75,000 | |
| Less: Deductions under Chapter VI-A | (1,75,000) | |
| 80C – PF contributions & deposit in 5 year Fixed Deposit with a bank | 1,50,000 | |
| 80D – Medical Insurance Premium paid | 25,000 | |
| Total Income (TI) | 5,00,000 | |
| Tax payable on total income | 12,500 | |
| Up to Rs. 2,50,000 | NIL | |
| 2,50,001 to 5,00,000 @ 5% | 12,500 | |
| Less: Rebate on tax under section 87A** | (12,500) | |
| Add: Health and Education Cess @ 4% | NIL | |
| Total Tax Payable | NIL | |
*Standard deduction increased from Rs. 40,000 to Rs. 50,000 by the Finance Act, 2019
**Added by the Finance Act, 2019
SECOND: Mr. Z, aged 61, earned salary income in form of pension of Rs. 8,80,000 for the financial year 2019-20. He also received Rs. 60,000 from interest on FD made with SBI. He deposited Rs. 1,50,000 in PPF. He also paid interest on loan of Rs. 2,10,000 taken for his self- occupied house. He also paid a premium for a floater health insurance policy of Rs. 55,000 for himself and his spouse. He also made a donation of Rs. 21,000 to the PM Nation Relief Fund.
What taxes shall Mr. Z pay for the financial year 2019-20?
| Statement showing computation of Total Income of Mr. Z and Tax payable thereon | ||
| Description | Amount (Rs.) | |
| Income under the head Salary | 8,30,000 | |
| Gross Salary/Pension | 8,80,000 | |
| Less: Standard Deduction | 50,000* | |
| Income under the head House Property | (2,00,000) | |
| Less: Interest paid on loan taken for self-occupied house | 2,10,000** | |
| Income under the head Other Sources | 60,000 | |
| Interest on Fixed Deposit with SBI | 60,000 | |
| Gross Total Income (GTI) | 6,90,000 | |
| Less: Deductions under Chapter VI-A | (2,71,000) | |
| 80C – PPF contribution | 1,50,000 | |
| 80D – Medical Insurance Premium | 50,000 | |
| 80G – Donations to PM-NRF | 21,000 | |
| 80TTB – Interest on FD | 50,000*** | |
| Total Income (TI) | 4,19,000 | |
| Tax payable on total income | 5,950 | |
| Up to Rs. 3,00,000 | NIL | |
| 3,00,001 to 5,00,000 @ 5% | 5,950 | |
| Less: Rebate on tax under section 87A**** | (5,950) | |
| Add: Health and Education Cess @ 4% | NIL | |
| Total Tax Payable | NIL | |
*Standard deduction increased from Rs. 40,000 to Rs. 50,000 by the Finance Act, 2019
**Max. interest on loan paid taken for self-occupied house that can be allowed as deduction is Rs. 2,00,000 under section 24. The balance of Rs. 10,000 is disallowed.
***Max. allowance under section 80TTB is Rs. 50,000.
****Added by the Finance Act, 2019
THIRD: Mr. F, aged 45, earned salary income of Rs. 10,00,000 for the financial year 2019-20. He received Rs. 15,000 as interest on his saving bank account. He deposited Rs. 1,50,000 in a 5 year FD with post office. He also paid interest on loan of Rs. 2,50,000 taken for his self-occupied house. He also paid a premium for a floater health insurance policy of Rs. 20,000 for himself and his spouse. He also paid medical expenses for his father during the year of Rs. 35,000 who was not covered by any insurance policy. He also made a donation of Rs. 25,000 to the PM Nation Relief Fund. He has also paid interest on loan of Rs. 25,000 taken for higher education of his son.
What taxes shall Mr. F pay for the financial year 2019-20?
| Statement showing computation of Total Income of Mr. F and Tax payable thereon | ||
| Description | Amount (Rs.) | |
| Income under the head Salary | 9,50,000 | |
| Gross Salary/Pension | 10,00,000 | |
| Less: Standard Deduction | 50,000* | |
| Income under the head House Property | (2,00,000) | |
| Less: Interest paid on loan taken for self-occupied house | 2,50,000** | |
| Income under the head Other Sources | 15,000 | |
| Interest on Saving Bank Account | 15,000 | |
| Gross Total Income (GTI) | 7,65,000 | |
| Less: Deductions under Chapter VI-A | (2,60,000) | |
| 80C – PPF contribution | 1,50,000 | |
| 80D – Medical Insurance Premium and Medical expenditure for his Father | 50,000*** | |
| 80E – Interest on loan for higher education | 25,000 | |
| 80G – Donations to PM-NRF | 25,000 | |
| 80TTA – Saving Bank Interest | 10,000**** | |
| Total Income (TI) | 5,05,000 | |
| Tax payable on total income | 13,500 | |
| Up to Rs. 2,50,000 | NIL | |
| 3,00,001 to 5,00,000 @ 5% | 12,500 | |
| 5,00,001 to 10,00,000 @ 20% | 1,000 | |
| Less: Rebate on tax under section 87A | (NIL as total income exceeds Rs. 5,00,000) | NIL |
| Add: Health and Education Cess @ 4% | 540 | |
| Total Tax Payable | 14,040 | |
*Standard deduction increased from Rs. 40,000 to Rs. 50,000 by the Finance Act, 2019.
**Max. interest on loan paid taken for self-occupied house that can be allowed as deduction is Rs. 2,00,000. The balance of Rs. 50,000 is disallowed.
***Max. amount deductible under section 80D is Rs. 50,000 therefore Rs. 5,000 is disallowed.
****Max. allowance under section 80TTA is Rs. 10,000.
3. No tax on notional rent of a second self-occupied house
Currently, income tax on notional rent is payable if one has more than one self-occupied house. Considering the difficulty of the middle class having to maintain families at two locations on account of their job, children’s education, care of parents etc. the Interim Budget, 2019, exempted the levy of income tax on notional rent on a second self-occupied house.
To give effect to this, the Finance Act, 2019 amended Section 23(4) of the Act as follows:
Section 23(4): Where the property referred to in sub-section (2) consists of more than [one two house]—
(a) the provisions of that sub-section shall apply only in respect of [onetwo] of such houses, which the assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, [other than the house or houses] in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let.
4. Benefit of rollover of Capital Gains increased from investment in 1 residential house to 2 residential houses
The benefit of rollover of capital gains under section 54 of the Act has been increased from investment in 1 residential house to 2 residential houses for a tax payer having capital gains up to Rs. 2 crore. This benefit can be availed once in a life time.
Let’s understand this with an example.
Illustration: In December, 2019, Mr. Q sold his 5 BHK residential house at Delhi for Rs. 3.25 crores. The cost of acquisition for this house was Rs. 1.25 crores (after indexation).
He bought 2 new 4 BHK residential houses at Noida in a newly developed township at a cost of Rs. 1 crore each in order to provide sufficient living space for his expanding family.
What taxes by of capital gain will Mr. Q pay?
| Extract of Statement of Total Income of Mr. Q showing computation of Income under the head Capital Gain for financial year 2019-2020 | ||
| Description | Amount (Rs.) | |
| Income under the head Capital Gain | NIL | |
| Sale Consideration | 3,25,00,000 | |
| Less: Cost of Acquisition (Indexed) | 1,25,00,000 | |
| Capital Gains | 2,00,00,000 | |
| Less: Deduction under Section 54
(Rs. 1 crore x 2 houses) |
2,00,00,000 | |
Notes:
1) This benefit cannot be availed by the assessee in any future years. This benefit is available once in a life time only to an assessee.
2) The capital gains shall only be up to Rs. 2 crores in order to avail this benefit.
We are here done with the amendments that were made by the Interim Budget, 2019.
Let’s now understand the amendments, changes, additions, etc. made by the Annual or Final Budget, 2019.
II. ANNUAL/FINAL BUDGET and THE FINANCE (NO. 2) ACT, 2019
1. Tax incentive for Electric Vehicles [Section 80EEB]
A new section 80EEB has been introduced by the Budget that provides for a deduction in respect of interest on loan taken for purchase of an electric vehicle from any financial institution up to Rs. 1,50,000 subject to the following conditions:
(i) the loan has been sanctioned by a financial institution (incl. NBFC) during the period beginning on the 1st April, 2019 to 31st March, 2023.
(ii) the assessee does not own any other electric vehicle on the date of sanction of loan.
This has been done with a view to improve environment and to reduce vehicular pollution.
Where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of this Act.
2. Tax incentive for Affordable Housing [Section 80EEA]
A new section 80EEA has been introduced by the Budget that provides for a deduction in respect of interest up to Rs. 1,50,000 on loan taken for residential house property from any financial institution subject to the following conditions:
(i) loan has been sanctioned by a financial institution during the period beginning on the 1st April, 2019 to 31st March 2020.
(ii) the stamp duty value of house property does not exceed Rs. 45,00,000.
(iii) assessee does not own any residential house property on the date of sanction of loan.
This has been done in order to provide an impetus to the ‘Housing for all’ objective of the Government and to enable the home buyer to have low-cost funds at their disposal.
Where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of this Act.
3. Incentives to National Pension System (NPS) subscribers
Under the existing provisions, any payment from NPS to an assessee on closure of his account or on his opting out of the pension scheme, to the extent it does not exceed 40% of the total amount payable to him at the time of such closure or on his opting out of the scheme, was exempt from tax.
With a view to enable the pensioner to have more disposable funds, the said exemption limit has been increased from 40% to 60% of the total amount payable to the person at the time of closure or his opting out of the scheme.
Further, under the existing provisions of section 80CCD, in respect of any contribution by the Central Government or any other employer to the account of the employee, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer, as does not exceed 10% of his salary in the previous year.
In order to ensure that the Central Government employees get full deduction of the enhanced contribution, the limit has been increased from 10% to 14% of the contribution made by the Central Government to the account of its employee.
Also, to enable the Central Government employees to have more options of tax saving investments under NPS, section 80C is amended so as to provide that any amount paid or deposited by a Central Government employee as a contribution to his Tier-II account of the pension scheme shall be eligible for deduction under the said section.
4. Mandatory furnishing of return of income by certain persons
Currently, a person (other than a company or a firm) is required to furnish the return of income only if his total income exceeds the maximum amount not chargeable to tax, subject to certain exceptions. Therefore, a person entering into certain high value transactions is not necessarily required to furnish his return of income. In order to widen and deepen the tax net, the budget provided that a persons who enter into certain high value transactions shall be mandatorily required to file his return of income, if during the previous year, he
(i) has deposited an amount or aggregate of the amounts exceeding Rs. 1 crore in one or more current account maintained with a banking company or a co-operative bank; or
(ii) has incurred expenditure of an amount or aggregate of the amounts exceeding 2,00,000 for himself or any other person for travel to a foreign country; or
(iii) has incurred expenditure of an amount or aggregate of the amounts exceeding 1,00,000 towards consumption of electricity; or
(iv) fulfils such other prescribed conditions, as may be prescribed.
Further, currently, a person claiming rollover benefit of exemption from capital gains tax on investment in specified assets like house, etc., is not required to furnish a return of income, if after claim of such rollover benefits, his total income is not more than the maximum amount not chargeable to tax. The annual Budget 2019 provided that a person who is claiming such rollover benefits on investment in a house or other assets, under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB of the Act, shall necessarily be required to furnish a return, if before claim of the rollover benefits, his total income is more than the maximum amount not chargeable to tax.
III. THE TAXATION AND OTHER LAWS (RELAXATION OF CERTAIN PROVISIONS) ORDINANCE, 2020 – To give effect to Finance Minister’s announcements vide Press Release dated 24th March, 2020.
Keeping in view the challenges faced by taxpayers in meeting the compliance requirements under lockdown conditions, the Finance Minister had announced several relief measures relating to statutory and regulatory compliance matters across sectors in view of COVID-19 outbreak on 24.03.2020 vide a press release. In order to give effect to the announcements, the government has brought in an Ordinance on 31.03.2020 which provides for extension of various time limits under the Taxation and other Acts.
Some of the important features and time limits which get extended by this Ordinance are as under:-
| Description | Implication |
| EXTENSION in the date for making investment/payment for claiming deduction under Chapter VIA-B
Date for making investment/payment for claiming deduction under Chapter VIA-B which includes Section 80C (LIC, PPF, NSC, etc.), 80D (Mediclaim, etc.), 80G (Donations), etc. has been extended to 30th June, 2020. |
1. Investment/Payments can be made up to 30.06.2020 for claiming deduction under these sections for financial year 2019-2020.
2. The deduction can be availed only once for a financial year and cannot be taken for both the financial years simultaneously. For example, Mr. A can make PPF deposit on 25.06.2020 and claim the deduction for the same under section 80C for F/Y 2019-2020 or for F/Y 2020-2021. He cannot claim it for both the years simultaneously. |
| EXTENSION in the date for claiming deduction under Section 54 to 54GB
Date for making investment, construction or purchase for claiming roll over benefit or deduction in respect of capital gains under sections 54 to 54GB of the Act has also been extended to 30 June 2020. |
The investment, construction or purchase made up to 30.06.2020 shall be eligible for claiming deduction from capital gains arising during F/Y 2019-2020. |
| EXTENSION in the date for Aadhaar-PAN linking
Extension of Aadhaar-PAN linking date to 30 June, 2020. |
The earlier date was 31st March, 2020.
To avoid penalty and invalidation of PAN, Aadhaar needs to be linked with PAN by 30.06.2020. |
| PM CARES FUND
A special fund “Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND)” has been set up for providing relief to the persons affected from the outbreak of COVID-19. The Ordinance amended the provisions of the Act to provide the same tax treatment to PM CARES Fund as available to Prime Minister National Relief Fund. |
1. The donations made to the PM CARES Fund shall be eligible for 100% deduction under section 80G of the Act.
2. The limit on deduction of 10% of gross income shall also not be applicable for donation made to PM CARES Fund. 3. As the date for claiming deduction under section 80G has been extended up to 30.06.2020, the donation made up to 30.06.2020 shall also be eligible for deduction from income of F/Y 2019-2020. |
IV. ATMANIRBHAR BHARAT (SPECIAL ECONOMIC PACKAGE) – vide Press Release dated 13th May, 2020
The COVID-19 lockdown made everything non-operational. The businesses are shut, people are locked at their homes, there is no commercial activity and the entire world economy is at its all time low!
Considering the above, the economic package, in order to ease the burden of compliances on various stakeholders has extended the time frame for:
1. Filing Return of Income and Tax Audit Report for F/Y 2019-2020 i.e. A/Y 2020-2021
| Description | Before | Now |
| – ITR by a Company or
– Where there is Audit requirement under Income Tax Act or any other law or – ITR by a partner of a firm whose accounts are required to be audited |
31st October, 2020 | 30th November, 2020 |
| Others | 31st July, 2020 | 30th November, 2020 |
| Filing of Tax Audit Report | 30th September, 2020 | 31st October, 2020 |
2. Assessments
As the dates of filing return of income have been extended the assessment period is extended as well.
| Assessments getting barred on | Extended to |
| 30th September, 2020 | 31st December, 2020 |
| 31st March, 2021 | 30th September, 2021 |
3. Vivad se Vishwas Scheme
The scheme was introduced by the Budget 2020 and came in form of an Act in March, 2020. Since its introduction this scheme has remained in Vivads with regard to its due date.
Earlier the last date for dispute settlement between the taxpayer and the department, without any interest and penalty, was 31st March, 2020 but as the scheme was notified late, it was extended to 30th June, 2020.
Again, the economic package has extended this date to 31st December, 2020. Therefore, now taxpayers can settle their existing disputes without payment of any additional amount by 31st December, 2020.
CONCLUSION:
With the help of this article, all individuals would be able to compute their total income and the tax payable thereon for the financial year 2019-2020.
All the amendments, notifications, orders, circulars, acts, press releases, etc. notified till date has been fully incorporated in the above article.
At the time of filing your income tax returns, the provisions highlighted in this article shall serve as a ready reckoner for computing total income and tax payable thereon for the financial year 2019-2020 for an individual.
For any tax or related queries, kindly drop in the comments below or e-mail on [email protected]
Do hit the like button and share, if you found the contents worthy and helpful.
Author Bio
Can a senior citizen claim both medical insurance premium and medical expenses under section 80 D
within the cap of Rs.50000