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By: Ayansh FINsights | February 03, 2019

  • Individuals
  • Senior Citizens
  • Super Senior Citizens
Individuals
Individual/HUF/AOP/BOI/AJP not being Senior or Super Senior CitizensRate applicable
Taxable Income upto Rs. 2.5 lakhs Nil
INR 2,50,001 to INR 5,00,000 5%
INR 5,00,001 to INR 10,00,000 10%
More than INR 10,00,000 30%
Senior Citizens
Super Senior Citizens
Photo by rawpixel.com from Pexels
Budget_2019_India_Tax_rates_slabs_5_lakhs_no_tax

Updates : Final Budget (July 2019)

As most of the readers must have noticed, there was not much in it from Individual Income Tax perspective. However monotonous or cliched this may sound - the budget still had many strategic announcements that were a must, to eventually move towards a developed economy. We will move straight to the updates, followed by our view of the budget. Of course, there will also be the originally written article covering the Interim Budget post that.


Budget Updates:


  1. New surcharge ‘slabs’ are added. Till now, the surcharge on income tax was 10% for Total income exceeding 50 lakhs upto 1 crore, and 15% for incomes exceeding 1 crore. Now, for total income exceeding 2 crores, surcharge on income tax will be 25%, and for income exceeding 5 crores, it will be 37%.

  2. Corporate income tax rate at 25% for companies with turnover upto 400 crores (up from 250 crores), if they meet the conditions specified in section 115BA. This is expected to cover 99.3% of corporates.

  3. 1.5 lakh additional interest deduction for home loans availed for purchase of Affordable housing (Section 80EEA).

Conditions:

  • Loan is sanctioned between April 1, 2019 and March 31, 2020.

  • Stamp Duty Value of the property does not exceed INR 45,00,000.

  • Assessee does not own any residential house property on the date of sanction of loan.

  1. 1.5 lakh interest deduction for loans availed for purchase of Electric Vehicles (Section 80EEB). Only condition to be met is - loan is sanctioned between April 1, 2019 and March 31, 2023.

Of course, these 2 new sections are over and above the 80C limit of INR 1.5 lakhs. Further, to promote Electric Vehicles, it is proposed to reduce the GST from 12% to 5%.


  1. Department will gather more data from more sources, by removing some thresholds to enhance pre-filling of Income tax returns, thus improving accuracy and reducing the time spent by taxpayer in filing the return. This includes collecting data even from Stock Exchanges to gather Capital Gains data, or from EPFO to collect EPF contribution or even redemption details.

  2. Faceless e-assessment, involving no human interface is launched in a phased manner. Even the identity of Assessing Officer will not be disclosed, as the single point of contact between the taxpayer and the Department, will be a single Central Cell. This will eliminate certain undesirable practices on the part of tax officials.

  3. TDS @ 2% to be levied on withdrawals exceeding INR 1 crore from a bank account in a year (Section 194N). This will curb businesses from transacting in cash, and increase transparency.

  4. TDS on payments for purchase of immovable property, to now be calculated after including other charges like club membership fees, car parking fee etc.

  5. PAN & Aadhar number are now interchangeable. For those who do not have PAN, the Department will allot a PAN, based on Aadhar number, obtaining the other details from UIDAI database. Wherever PAN is required to be quoted, a person may choose to quote Aadhar number, including, even for filing the Income Tax return.


There are a number of measures announced to improve Ease of Compliance with respect to GST. It is important to note that many GST related changes are subject to approval by GST Council. Below are some of the key measures :


  1. Free accounting software for return preparation has been made available to small businesses. A fully automated GST refund module shall be implemented. Multiple tax ledgers for a taxpayer shall be replaced by one.

  2. It is also proposed to move to an electronic invoice system wherein invoice details will be captured in a central system at the time of issuance. This will eventually be used to prefill the taxpayer’s returns. There will be no need for a separate e-way bill. Its roll out would begin from January, 2020. Electronic invoice system will significantly reduce the compliance burden.

  3. A simplified single monthly return is being rolled out. Taxpayers having annual turnover of less than INR 5 crore shall file quarterly return.


Some other highlights :


  1. Start-ups in India are taking firm roots and their continued growth needs to be encouraged. To resolve the so-called ‘angel tax’ issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department.

  2. Businesses with annual turnover more than 50 crore shall offer low cost digital modes of payment, like UPI, Aadhar Pay, NEFT etc to their customers. It is important to note here, that recently RBI had announced an abolishment of NEFT and RTGS charges.

  3. No charges or Merchant Discount Rate (MDR) shall be imposed on customers as well as merchants. RBI and Banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to digital modes of payment.

  4. The Government is proposing to streamline multiple labour laws into a set of four labour codes. This will ensure that the process of registration and filing of returns will get standardized and streamlined. With various labour related definitions getting standardized, it is expected that there shall be less disputes.

  5. Custom duty on gold and other precious metals increased from 10% to 12.5%.


Our View:


As mentioned at the start, this is a budget that would sound monotonous to most people. However, a deeper analysis of it reveals that there have been many structural changes to give a smooth path to the growth drivers of this economy, for the upcoming decade. By now, you must have already gone through the changes we have listed out. These are just some of the major changes announced - we did not cover the others since our focus still remains just around taxation, that too mainly for individuals and small businesses. 


Going forward, we expect the compliances to get easier to accomplish and less costly - the results of which, will only reflect in next few years. The honorable Finance Minister acknowledges that the lesser invasive the tax collection process, the more efficient the collection will be, by drawing an analogy to a Tamil verse in the Budget Speech (Can be found on Page 24 of the Budget Speech, as point no. 106, linked below).


We have used the Budget Speech and Finance bill as our reference documents.

Interim Budget 2019

We are back with our Budget analysis for the 2019 Interim Budget. We would start off quoting the Honorable Finance Minister as is from the Budget Speech available here:


“On behalf of all the people of India and our Government, I would first like to thank all our taxpayers for their valuable contribution to nation building and for providing a better life to the poor and marginalized sections of society. Your tax helps provide dignity to our sisters and mothers with toilets and cooking gas connections. Your tax pays for the electricity connections to the poor who lived in darkness for generations. The tax you pay will provide health care to 50 crore brothers and sisters, and children. It is you who is ensuring respect, dignity, and a secure future to our retired jawans through One Rank One Pension. Thank you, taxpayers.”


This is a paradigm shift in the way we taxpayers are looked at by the Government - The Honest Taxpayer has been openly thanked by the Finance Minister on National TV, in a Budget Speech.


Coming to the topic, the 2019 Budget - being a Central election year, this was supposed to be, and has been an Interim, vote on account budget. Like our analysis last time, the focus of this article primarily is on direct taxes relevant for individuals & domestic businesses and the overall economic outlook provided in the budget speech.


Our view of this budget - the Finance Minister has been able to provide benefits to almost every section of the society possible, without tinkering much with the fiscal math, and without making too many changes to the Direct & Indirect taxes - a job well done.


Key Highlights:


  1. First things first - Slab rates, 80C/80D, Home Loan deduction limits stay unchanged.

  2. The obvious Question - If slabs have not changed, what is the meaning of “No income tax till income of INR 5,00,000”? Answer: It is covered as a part of rebate under section 87A. In layman terms, if your Net taxable income is upto INR 5 lakhs (earlier, this limit was INR 3,50,000), then your tax will still be calculated as before, but, that same tax amount will be adjusted against an equal amount of rebate, and hence, you will not be paying any taxes. More on this, with an example is covered in a later section.

  3. Another major change - One can have upto 2 Self Occupied Properties (SOPs). Till now, if you had 2 properties, and both were used for own purposes, or one of them was just simply left vacant throughout the year, that property would have been considered as “Deemed Let Out Property”. With that tag, one was required to pay income tax on notional rent. From now on, one can own 2 SOPs and still will not have to pay tax on notional rent.

  4. Standard Deduction has increased from INR 40,000 to INR 50,000.

  5. Threshold for TDS deduction on Interest (sec 194A) and Rental (sec 194I) payouts have been increased to INR 40,000 and INR 2,40,000 respectively. This is expected to benefit people who have only Interest and/or Rental income, but whose total incomes are below taxable limits. Such people were required to either obtain a no deduction certificate or had to file their returns just to get refund of TDS.

  6. Long term capital gains on sale of property, of upto INR 2 crores, can be utilised for construction or purchase of 2 residential houses, as against one residential house up till now. This is beneficial for people who have large accumulated gains on their existing property and they are looking to go for 2 residential houses by selling the existing one.

  7. 99.54% of the income tax returns filed last year, were accepted as is - no changes were proposed by the Income Tax department in these, and refunds have been issued successfully wherever applicable. Over a period of next 2 years, almost all verification and assessment of returns selected for scrutiny will be done electronically through anonymised back office, manned by tax experts and officials, without any personal interface between taxpayers and tax officers. Separately, the Department is looking to process the filed returns in 24 hours, and issue refunds going forward. These steps are expected to bring more transparency in processing of returns, and reduce the uncertainty faced by the honest taxpayer.

  8. Changes to Stamp Duty on Equity transactions - earlier, stamp duty was levied on equity transactions differently across states. It will now be levied uniformly by exchanges and will be distributed to states according to the domicile state of the buyer. This is against what brokers had expected - an abolition of Stamp duty, in view of STT already being levied. However, considering that it is still there, this will bring in more uniformity and is expected to streamline the process of stamp duty collection across the states.


These may appear to be large scale changes, however there are only about 8-10 overall material changes to the Income Tax Act, as compared to 40-50 or even more changes in any full budget, coupled with similar number of changes in Indirect Taxes.

These changes however, will have to be approved in the full budget, that will be presented by the Finance Minister of the newly elected Government post the Central elections.


Rebate of tax for incomes upto 5 lakhs:


You might still have unanswered questions on the “no tax upto income of INR 5 lakhs” part. We can take it up with an example here:


Suppose someone earns INR 10,00,000 in a year. Now, that person can effectively have a tax liability of INR 0.


Particulars

Post Budget

Pre Budget

Income From multiple sources

1,000,000.00

1,000,000.00

Exempt Incomes



Petrol allowance

0.00

0.00

Food Coupons

0.00

0.00

Standard Deduction *

50,000.00

40,000.00

Net taxable income

950,000.00

960,000.00

Income from House Property

-200,000.00

-200,000.00

Total Income

750,000.00

760,000.00

Deductions:



80C (Investments)

-150,000.00

-150,000.00

80D (Medical Ins)

-50,000.00

-50,000.00

80CCD(1B) (NPS)

-50000

-50000

Gross Total Income

500,000.00

510,000.00

Tax on total income:



Upto 2,50,000

0.00

0.00

2,50,001 - 5,00,000

12,500.00

12,500.00

5,00,000 - 10,00,000

0.00

2,000.00

Total Income tax

12,500.00

14,500.00

Less: Rebate u/s 87A

-12,500.00

0.00

Net tax payable

0.00

14,500.00

Cess

0.00

580.00

Total taxes payable

0.00

15,080.00


* Assumed for salaried person


Now there are implicit assumptions here that can easily change or may not be possible for some. However, as can be seen - we have not even counted tax free incomes in this example. One may have lesser NPS / 80C / 80D / Home Loan Deduction, but that can be compensated by some tax free incomes, or any other combination.

However, one thing to note - even though there may be no tax liability post these changes, one is still required to file the income tax return on time. This rebate itself was driven by the data available with Government. And that exactly is the intention this time round - that people file their tax returns, and Government can still get the data, to give more benefits to the same set or even broader set of people.


Another aspect noteworthy enough, for a mention in this piece (despite the focus being on Direct Taxes), is that the Government has promised a basic income scheme for the farmers (From the budget speech) - “Pradhan Mantri KIsan SAmman Nidhi (PM-KISAN)”. Under this programme, vulnerable landholding farmer families, having cultivable land upto 2 hectares, will be provided direct income support at the rate of INR 6,000 per year. This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of INR 2,000 each. This programme will be funded by Government of India. Around 12 crore small and marginal farmer families are expected to benefit from this. The programme would be made effective from 1 December 2018 and the first instalment for the period upto 31 March 2019 would be paid during this year itself. This programme will entail an annual expenditure of INR 75,000 crore.



Economic performance:


Despite giving so many benefits to various sections of the society, the Fiscal Deficit number for FY 2018-19 has come at around 3.4%, against a target of 3.3% as per the last budget. This is very important, since we still cannot afford to increase the deficit, as mentioned in our article last time round. This marginal miss has been due to the INR 20,000 crore of outflow towards farmer income support outgo, that is expected before 31 March 2019 itself. In absence of that, the Fiscal Deficit number would have come at around 3.1%.


Conclusion:


Our view as mentioned first up is that this is a really good budget, considering the fact that it is an election year and almost everyone will be hoping for their share of benefits, and most have got it. This, despite being the fact that this is just a vote on account budget, and also, you do not want to appear spendthrift in the eyes of Foreign Investors and the rating agencies.


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