Lower income class taxpayers took the centrestage in the Interim Budget 2019-20 presented by the Finance Minister Piyush Goyal with significant relief being granted in direct taxes. However those in the 20 per cent and 30 per cent tax bracket were in for a disappointment, as their tax outgo remains the same.
The Budget proposed that individual tax-payer having taxable annual income upto Rs 5 lakhs shall get full tax rebate. This translates into zero tax for individuals earning between Rs 7 lakh to 7.5 lakhs per annum. However, as tax slabs and threshold were not changed, people in middle to higher income bracket will not reap any benefit.
Though limited in application, the tax proposals seems to have gone down well with a large chunk of lower and middle-class taxpayers that have also been an important vote bank for the ruling BJP. This section was seen moving away from the party in the recently concluded state elections where the ruling combination lost.
The other relief in the interim budget for the middle mclass is increase in standard deduction by Rs 10,000 (from Rs 40,000 currently to Rs 50,000) and increase in threshold limit for deduction of tax at source for interest income on bank deposit to Rs 40,000.
Presenting the budget in Parliament, Goyal said that his proposals will provide tax benefit of Rs 18,500 crore to an estimated 3 crore middle class taxpayers comprising self employed, small business, small traders, salary earners, pensioners and senior citizens. The increase in standard deduction provides additional tax benefit of Rs 4,700 crore.
“Because of major tax reforms undertaken by us during the last four and half years, both tax collections as well as the tax base have shown significant increase and we have made progress towards achieving a moderate taxation–high compliance regime. It is, therefore, just and fair that some benefits from the tax reforms must also be passed on to the middle class taxpayers,” Goyal said while justifying his tax proposals for middle-income group.
While the interim budget proposal for salaried will benefit small tax-payers by way of tax rebate, they have not been exempted from filing returns as tax exempt threshold limit remains at Rs 2.5 lakh per annum. Goyal has not changed the tax slabs citing interim nature of the budget and that this could be taken care of by the next government when a full-fledged budget is presented.
So the biggest relief in Budget is for those in the 5 per cent tax bracket earning an annual salary up to Rs 5 lakh.
“The maximum benefit (exemption under Section 87) is Rs 12, 500 annually for people whose taxable income is below Rs 5 lakh. And if a person is salaried, then he sees an additional tax reduction of Rs 500 (on account of standard deduction of Rs 10,000 announced in the Budget). For those in the 20 per cent and 30 per cent tax bracket, the net-in-hand increases by only Rs 2000 and Rs 3000 under the standard deduction, provided they are salaried employees. However business class is excluded for availing benefit under standard deduction.” said Pankaaj Maalde, a certified financial planner.
“A saving of Rs 13,000 for those in the lowest tax bracket translates into a mere monthly saving of around Rs 1000 and that would just be spent on expenses. One should have a financial plan to meet their financial goals irrespective of the Budget and continue with their monthly Systematic Investment Plans (SIP),” added Maalde.
Vaibhav Agrawal senior vice-president head of research at Angel Broking said, “The overall limit under Section 80C and Section 24 for interest on home loan have been kept constant. However, since the rebate up to Rs 5 lakh is on taxable income, your actual exempt income can be Rs 9.5 lakh assuming that you utilize your Section 80C investments Rs 1.5 lakh, NPS limit of Rs 50,000 and the home loan interest limit of Rs 2 lakh to the fullest.”
The budget has gone a step forward to reward honest tax-payers by providing relief on income earned from rent and tax on capital gains accruing from sale of self-occupied house. It has also raised the TDS threshold on interest earned on bank/post office deposits to provide benefit to small depositors and non-working spouses.
It proposed to exempt levy of income tax on notional rent on a second self-occupied house. Currently, income tax on notional rent is payable if one has more than one self-occupied house. The changes have been made to avoid difficulty faced by the middle class having to maintain families at two locations on account of their job, children’s education, care of parents.
With regard to TDS on interest earned on bank/post office deposits, the threshold has been raised from Rs 10,000 to Rs 40,000 per annum. Further, the TDS threshold for deduction of tax on rent has also been increased from Rs 1,80,000 to Rs 2,40,000 for providing relief to small taxpayers.
“There proposals will ease tax administration for small savers. But the biggest change is on the proposed changes in tax administration over the next two years wherein all tax returns will be processed in 24 hours and the refunds will be processed simultaneously,” said Agrawal.
The middle-class flavour of the budget will also benefit those home owners looking to invest in a new residential property. The benefit of rollover of capital gains under section 54 of the Income Tax Act has been increased from investment in one residential house to two residential houses for a tax payer having capital gains up to Rs 2 crore. This benefit can be availed once in a life time.
“Raising TDS threshold for interest and rental income should be welcome to passive income earners, such as senior citizens. Eliminating tax on the notional income of second self-occupied house and allowing capital gain exemption on investment in the second house were much needed rationalization and should rejuvenate interest in real estate. Anonymous electronic assessment is novel and augurs well for the road to minimum government and maximum governance. Sustained effort to enhance tax base by reducing complexity and moderating rates seem to yielding result as the FM points out in number of return filers increasing from 3.79 crores to 6.85 crores. The interim budget, as expected, has kept to the theme of being good to the lower and middle income strata of the economy.” Said Rahul Garg, sr partner - tax & regulatory, PwC India.
“Overall, the budget proposals on the personal taxation front would put more money in the pockets of small taxpayers and increase their purchasing power. In short, it is a progressive budget from a Chartered Accountant FM,” said Naveen N D Gupta, president, ICAI.
“Increase in disposable incomes for urban and rural India will provide a kicker to consumption demand. Improvement in consumer sentiment will boost demand for low value durables due to additional income of Rs 3,000 -10,000 in the hands of consumers next fiscal,” said Amish Mehta, COO, CRISIL.