Budget 2019 analysis: How income tax changes impact you

Here is a look at the tax proposals announced in both the budgets and their tax impact on your pocket.

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The year 2019 has seen the central government present the Union Budget twice. The interim budget was presented in February, and after its sweeping victory in the general elections, the BJP-led government presented the full budget on July 5.

Both budgets had some income tax-related announcements that can impact your personal finances. A lot of the announcements made by interim finance minister Piyush Goyal in February have come into effect, while the budget proposals announced by finance minister Nirmala Sitharaman are yet to come into effect as these are yet to be passed by the Parliament.

Here is a look at all of the tax proposals announced in both the budgets and their impact.

For the financial year 2019-20, no changes in the income tax slabs and rates were announced in July’s Budget 2019. However, the super-rich, i.e., those earning more than Rs 2 crore but less than Rs 5 crore and those earning more than Rs 5 crore will have to pay a higher surcharge.

Individuals whose taxable income does not exceed Rs 5 lakh for the FY 2019-20 will continue to avail the tax-rebate and thereby will pay zero tax.

Here’s are the latest income tax slabs along with rates and a surcharge for resident individuals below age 60 years:

Income slabs Tax rates Surcharge Cess
Up to Rs 2.5 lakh Nil Nil Nil
Rs 2,50,001 to Rs 5,00,000* 5% of (Total income minus 2,50,000 Nil 4%
Rs 5,00,001 to Rs 10,00,000 12,500 + 20% of (Total income minus 5,00,000) Nil 4%
Rs 10,00,001 to Rs 50,00,000 1,12,500 + 30% of (Total income minus 10,00,000) Nil 4%
Rs 50,00,001 to Rs 1 crore 1,12,500 + 30% of (Total income minus 10,00,000) 10% 4%
More than Rs 1 crore but less than 2 crore 1,12,500 + 30% of (Total income minus 10,00,000) 15% 4%
More than Rs 2 crores but less than Rs 5 crore 1,12,500 + 30% of (Total income minus 10,00,000) 25% 4%
More than Rs 5 crore 1,12,500 + 30% of (Total income minus 10,00,000) 37% 4%

*Rebate up to Rs 12,500 is available for those whose net taxable income does not exceed Rs 5 lakh, thereby resulting in zero tax liability.

Due to the newly introduced surcharge, those with incomes between Rs 2 crore and 5 crore will effectively have to pay 39 percent as tax and those with income more than Rs 5 crore will have to pay more than 42 percent as a tax according to EY analysis.

  • NPS withdrawal becomes tax-free

Those investing in the National Pension System (NPS) have another reason to cheer. Budget 2019 has finally announced the move to make lump sum withdrawals at the time of maturity tax-exempt.

NPS at the time of maturity allows the investor to withdraw 60 percent of the corpus as a lump sum and the remaining 40 percent to be used to compulsorily buy annuity plan.

As per current laws, 40 percent of the lump sum withdrawal is tax-exempt from the 60 per cent corpus.

Also, government employees investing in Tier-II account of NPS will claim tax-benefit under section 80C.

  • Additional tax-break for buying an affordable house

As announced in Budget 2019, an individual can claim an additional deduction of Rs 1.5 lakh on interest paid on home loan under the newly introduced section 80EEA subject to certain conditions. The conditions are as follows:
a) The loan must be taken between April 1, 2019, and March 31, 2020;
b) The value of house property must not exceed Rs 45 lakh, and
c) Individual should not own any house on the date of sanctioning of the loan.

Additional deduction of Rs 1.5 lakh is available over and above the existing Rs 2 lakh deduction on the home loan interest paid under section 24.

  • 2% TDS on withdrawing cash

To discourage cash transactions and push digital payments, Budget 2019 has proposed to impose tax deduction at source (TDS) at the rate of 2 percent if the total cash withdrawn in a financial year exceeds Rs 1 crore from a bank, post office or cooperative bank from a single account.

However, this proposal will come into effect from September 1, 2019.

  • ITR filing mandatory in the following cases

To widen the tax base, Budget 2019 has proposed to make income tax return (ITR) filing mandatory if:
a) The amount deposited in current account held with bank or co-operative bank exceeds Rs 1 crore in a financial year;
b) Expenditure incurred on foreign travel exceeds Rs 2 lakh in a financial year;
c) If an individual incurs an electricity bills of Rs 1 lakh or more in a year; and
d) Claiming capital gains tax exemption on investment in house etc.

As per current laws, a person is required to file ITR if his total income exceeds maximum income not chargeable to tax subject to certain exceptions.

  • Parking and other charges come under the ambit of TDS

With effect from September 1, 2019, any payment made towards buying of property including payments made with respect to amenities such as club membership fees, car parking fees, electricity and water maintenance fees etc. to ascertain the amount of TDS to be deducted while making the payment.

Currently, tax is deducted only for the payment made with respect to property and other payment made for services are not included.

  • TDS on payments exceeding Rs 50 lakh to contractor

Individuals and Hindu Undivided Families (HUFs), with effect from 1 September 2019, will have to deduct tax at the rate of 5 percent for payments made to contractors and other professionals if it exceeds Rs 50 lakh in a year.

Presently, individuals and HUFs are not required to deduct tax at source on payments made to contractors or professionals.

NRIs to pay tax on gifts received by resident Indians

As per Budget proposals, gifts received by non-resident Indians (NRIs) from someone residing in India would come under the tax ambit. As per Budget documents, this tax will apply for the money paid or property situated in India transferred on or after July 5, 2019.

Apart from the tax proposals mentioned above, the announcements made in the interim budget also continue to remain effective for FY 2018-19.

Here is a quick glance at those budget proposals.

  • Hike in Standard Deduction

To provide relief to the salaried class, standard deduction was hiked by Rs 10,000 to Rs 50,000.

  • No tax on notional rent

You will not be required to pay tax on notional rent (deemed rent) on your second house if it is lying vacant.

  • Save tax on LTCG from house property

If you have sold a house, then to save tax you can invest the long-term capital gains (LTCG) into two houses instead of one earlier. However, this can be availed only if capital gains do not exceed Rs 2 crore and once in a lifetime of individual.

(This story originally appeared on The Economic Times)

Categories: Economy, Finance and Banking

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