CA Animesh Singi

CA Animesh Singi

Before budget people asked me How’s the Josh? I told High!, but now the Josh is neutral or almost died because of unenthusiastic goodies from the Budget Box.

Finally, Interim Budget 2019 by our interim Finance Minister Mr. Piyush Goyal is on our desk for review. This budget holds high expectations from the end of Middle-Class People who had been ignored since so long, from the farmers who were overburdened in debt, from MSME Sector who was much in finance distress, from the unemployed youth who has crossed the level of 7.1% which is the highest in last 45 years. Indian’s were repeatedly chanting “Apna time aayga, but government slapped them hard by answering common man “Tu nanga hi aaya tha nanga hi jayga”.

Despite of many cheerful reforms in past 4 years, government was facing tag of giving a jobless high GDP growth. This year Finance Minister (hereinafter “FM”) must balance  between the fiscal prudence and populism in this budget due to forthcoming elections which I think FM managed effectively by keeping fiscal deficit target to 3.4% as compared to last year 3.3%.

Let’s see whether government crystallised this opportunity to woo a larger section of aforesaid society ahead of the general elections who was disappointed since long time. This post explains Budget 2019 in detailed manner covering all Income Tax amendments.

What’s in the Bag for Individuals and Small Tax Payers?

1.  Rebate Under Section 87A

Common people have been clamouring for increasing or revising Income Tax slabs since long time. This year relief has been announced for small tax payers by extending rebate u/s 87A from Rs.2500/- to Rs.12500/-. Post completion of Budget Speech Salaried employees, TV Channels and many other Modi devotees applauding this welcoming step by understanding that Basic Exemption Limit has been enhanced to Rs. 5 Lakhs. Let me clear that Basic Exemption Limit is remain same i.e. 2.5 Lakh, only the rebate u/s 87A has been enhanced. So, you are also confused now? Let’s get it clear in simpler terms.

Present Position:

Basic Exemption limit is Rs.2.5 Lakh, however if Nett Taxable Income (after considering deduction u/s 80C or any other deduction) is not exceeding Rs.3.5 Lakhs then rebate of Rs.2500/- is given u/s 87A as tax relief to such tax payers i.e. no tax on income to the extent of Rs.3 Lakhs. However, if their income exceeds even a single Rs. Beyond Rs.3.5 Lakhs then they were requiring to pay tax as per slabs i.e. between 2.5 Lakhs to 5 Lakhs @ 5%, beyond that and up to 10 Lakhs @ 20% and beyond 10 Lakhs 30%. In short here criteria for claiming rebate is Income below Rs.3.5 Lakhs, but rebate for tax can be claimed up to income of Rs.3 Lakhs only.

Proposed Position:

Basic Exemption limit is still same i.e Rs. 2.5 Lakhs, however if Net Taxable Income (i.e. after considering all deductions 80C/80D etc or any other deduction) is not exceeding Rs. 5 Lakhs then rebate of Rs.12,500/- will be given u/s 87A as tax relief to such tax payers, that means they will not be required to pay any tax on their income. It is important to note that even after considering all eligible deduction if income falls beyond 5 Lakhs, suppose Rs,5,00,001/- then assessee will not get any benefit of this rebate and he would be liable to pay tax as per the slab. That means if you earn 1 Rs. more than 5 Lakh, then be ready to shell out excess Rs.12,500/- in the name of Tax. In simpler terms this amendment will benefit the small taxpayer’s segment who was offering income in the range of Rs.5-7Lakhs and also making investments u/s 80C, but there is no sigh of relief of tax payers by this rebate who has income ranging above Rs.7-8 Lakhs. Below table will take you to the fair comparison.

  Present Scenario Proposed Scenario
  Case A Case B Case C Case A Case B Case C
Gross Taxable Income 7,00,000 8,51,000 8,00,000 8,50,000 8,51,000 8,00,000
Deductions u/s 80C/80D -1,50,000 -1,50,000 -1,50,000 -1,50,000 -1,50,000 -1,50,000
Housing Loan Interest Deduction (Max. 2 Lakh) -2,00,000 -2,00,000 “Nil” Suppose person has no housing loan -2,00,000 -2,00,000 “Nil” Suppose person has no housing loan
Net Taxable Income 3,50,000 5,00,001 6,50,000 5,00,000 5,00,001 6,50,000
Tax (excluding health and ed. cess 4%) Nil Rs.12,500 Rs.42,500 Nil Rs.12,500 Rs.42,500
Benefit       Rs.12,500/- Tax Saving No Benefit No Benefit

My view:

If you are earning more than 5 Lakhs yearly, then be ready to do investments up to such extent that your net income falls under Rs.5 Lakh to save tax. FM is running Individual tax payers counter in very unstructured manner. Such kind of amendments are not meaningful unless the successive tax slabs are also changed. This action would benefit very less class of small tax payers who was contributing very small part in tax collections. It was an opportunity for the FM to revise the tax slabs in more pragmatic manner which was due since so many budget sessions and making it reasonable in such manner that no one should feel inferior of earning little high income as compared to people earning less income. What is happening here is if you earn medium range of income i.e. 5-7 lakhs then that is good you don’t pay tax, but if you earn slightly higher than ready to lose your pockets by 20% of tax. It is important to note last month government announced benefits of 10% general reservation in health and educational institutions for economically poor people and defines poor people as person who is having income up to Rs.8 Lakhs, but when it comes to pay taxes, even poor will pay tax that too @ 20% of income irrespective of the fact that he is poor and falls below poverty line. Government is unable to justify the definition of poor people by taking two faced views and decisions.

2.  Standard Deduction Increased to Rs.50,000/- from Rs.40,000/-

During last year budget Standard Deduction of Rs.40,000/- was introduced by withdrawing benefits in respect of Conveyance Allowance and Medical Allowance to Salaried People. In this budget in order to provide slight relief to Salaried class people, limit is enhanced to Rs.50,000/-, that means whatever you are earning as salary your salary will be reduced by Rs.50,000 straightaway for computing tax.

3.  No notional rental income required to be offered on Second house.

At present as per Section -23 of the Income Tax Act, if you are holding more then one house then you need to declare notional rent on remaining house or houses even if they are not rented and pay tax on such income. Considering the difficulty of the middle class having to maintain families at different locations on account of job, parents or any other reason, it is proposed in this budget to exempt the levy of income tax on notional rent on second self-occupied house also. It is pertinent to note that if you have rented the second house then you are still requiring to offer income on such home. This benefit is available only for self-occupied houses.

4.  Investment in two residential houses allowed to save Long term capital Gain upto Rs. 2 Crore.

Under Section 54, to save on the capital gains made on sale of a residential property, one can invest only in one residential property. In order to provide relief to the certain extent, this is now proposed that for Long term Capital Gain earned up to Rs.2 crore, one can invest in two different residential properties to save the tax on capital gains. However, this benefit can be taken once in a lifetime. It is important to note that this benefit is limited to the capital gain arising on sale of residential property and not on capital gain arises on sale of land or any other property. FM should’ve extended this benefit to Section 54F or other sections also. Practically very small amount of tax payers would be able to take benefit out of this.

What’s in the Bag for Businesses? 

1. Extension of period of exemption on levy of tax on notional rent on unsold stock from 1 year to 2 year.

During the last budget in order to provide relief to real estate sector, FM introduced the provision u/s 23 that no tax is requiring to pay on notional rental income of unsold inventories up to one year from the completion of the project. Looking to the slow-moving real estate sector, it is proposed to increase this period to two years. Now there is no need to offer notional rent on unsold inventories up to 2 years from the date of completion of project.

TDS Amendments:

1. Section 194A: Limit on deduction of TDS on interest earned from Banks and Post office to Rs.40,000/- from Rs.10,000/-.

In order to provide relief to senior citizen from filing of Income tax returns to claim TDS deducted on Interest earned from Banks and Post Office, it is proposed that no TDS would be deducted if Interest is less then Rs.40,000/- annually. Kindly note in respect of other interest income TDS deduction limit is still same i.e. Rs.5000/-  

2. Section 194I: TDS on Rent limit enhanced to Rs. 2,40,000/- from Rs.1,80,000/-     

Miscellaneous Amendments:

1. In order to promote affordable housing projects, the benefits u/s 80-IBA is extended for one more year till 31.03.2020.

What more could have been done?

This budget could be bolstered by introducing various tax reforms but in wake of interim budget amendments are very limited. Modi Ji had won our heart on surgical strike earlier, I was expecting similar Surgical Strike on big tax evaders also instead of harassing innocent taxpayers for increasing tax collections. General elections are on the floor in upcoming months and everyone is criticising or appraising government in their own manner. I must say that government did various enthusiastic reforms in past 5 years which no other government could have been done, but at the same it fails to strengthen the tax reforms for small tax payers from getting harassed. It came to notice that this Government is interfering more with the Central legislative functions such as Judicial authorities, CBI, RBI etc.  Last year while reading the Centre Action Plan 2018-19 issued by CBDT, I found a specific instruction regarding incentives of CIT(Appeals) (An authority which pass judgements on appeal made by Income tax payer against the assessment order of Income Tax Officer” on passing quality orders. However interestingly ‘quality orders’ are defines as an order  where “enhancement has been made or order has been strengthen or penalty has been levied”, that means if officer did any favour to the assessee even based on merits of the case, he will not get any incentive to perform his duty just because he did not helped in increase tax collection. Sadly, government defies the status of CIT(A) being a quasi-judicial authority who is bound to dispose of the appeal with complete unbiased manner.  This further infringes upon the principals of natural justice.

This doesn’t end up here, CIT(A) also instructed by CBDT to not to dispose appeal primarily on the basis of legal grounds. Interfering the work of judicial authority reflects that government has crossed all its limits to compromise an unbiased trial promised by constitution.

  • Government could have also introduced more reforms to remove the harassment faced by the tax payers due to corruption in tax departments. In Budget Speech FM told that assessment will be done electronically through anonymised back office, without any personal interference. This could be a game changing steps to control corruption at assessment level, but again it is impossible to imagine how the officer will assess the income of a PAN No. without knowing the identity of the person holding the PAN. Let’s see how things will be carried out in future.
  • An efficient tax system should be designed by bringing down corporate tax rates for boosting growth of the country in order to promote investment and employment. At present India’s Corporate tax burden is one of the highest in the World.
  • Dividend Distribution Tax Could be removed by restoring towards classic system of taxation i.e. where shareholder pays the tax. DDT is unnecessarily casting double taxation burden.
  • MAT rates could have been reduced to transfer the real benefits of incentives on certain investments.

I can extend this list to N no. of points, but that doesn’t make any sense unless government seems interested to change the wave of positive tax atmosphere in the country. Despite chasing common man for various late fees such as Income Tax filing late fees, Director’s KYC late fees, GST late filing fees, government should first build an IT infrastructure which can perform task till the last second on time of due date. GST network, ROC network and Income Tax Server all public utilities almost gets stopped to work on last dates and then heavy late fees burden drown on the shoulders of tax payers. Why not first improve your efficiency then charge fees.

Other Major Announcements:

  • “Pradhan Mantri Kisan Samman Nidhi” is announced, wherein direct income benefits at the rate of Rs.6000/- year has been offered to small farmers. Such kind of move was expected from the government as they lost four major states due to disappointment of farmers vote in last elections. However, I would appreciate more if reforms would be taken to serve farmers with some reforms which helps them to earn better or to repay their high debts.
  • 2% Interest Subvention to the farmers pursuing the activities of animal husbandry and fisheries through Kisan Credit Card. This will be increased to 3% on timely repayment of loan.
  • The ceiling of ESI eligibility cover has been increased from Rs.15,000/- PM to Rs.21,000/- PM.
  • Another Mega Pension scheme launched in NDA term after NPS. This pension scheme is named as “Pradhan Mantri Shram Yogi Maandhan”, this is specially for unorganised sector workers having salary less then Rs.15,000/- PM. It assures pension of Rs.3,000/- PM from the age of 60 on minimal contribution of Rs.100/- Per Month till the age of 60 years.
  • MSME sector was in distress and severely ravaged in past few years, but no new announcement has been made for this industry to regain their lost faith. The announcements such as 25% sourcing from SME by Public enterprises etc, which are the part of Budget speech was already notified in November 2018. Nothing new has been done at this end.

Conclusion:

From Income Tax perspective analysing this budget is not justifiable because being a interim budget no major actions apart from luring common tax payers for vote count has been taken. As regards other announcements specially farmer income support plan and new pension scheme, this may sound good to ears, but again Meagre amount of Rs.6000/- year could have done no good to farmers who are paying Interest of Rs.6000/- per Month. Regarding farmers and addressing unemployment, budget failed to create enough domestic tailwind. Instead of launching new schemes for new scams and increasing deficit to lure voters, focus should be made on improvising existing schemes or resolving existing problems. This year budget is no different, same optimistic approach on revenue front and pessimistic approach on expenditure front. No announcements was made for strengthen education sector. India need to shift from “hand outs” to “hand-ups”. There is inordinate attention in generating various schemes for handouts especially before elections. India needs to focus more on hand-ups to help farmers, entrepreneur’s and exporters to become more competitive and increase employment. Instead of new schemes to provide more subsidies and quotas, people need more opportunities to lift themselves by the bootstraps and contribute to the economic pie.

Disclaimer: The Contents of the document are solely for information purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Comments on misinterpretation and mistakes are wholeheartedly invited.

(Author can be reached at animeshsingi@gmail.com)

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