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5 personal tax changes expected in Budget 2019

  • The government may offer more tax benefits on housing loans in the budget
  • There are expectations that the government may increase the basic income tax exemption limit

On Friday, the NDA government will present the final budget of its term. The government may announce some tax relief for the middle or lower income groups. But some tax experts don’t expect the finance minister to announce sweeping changes on the income tax front, especially before the release of Direct Tax Code report, due on February 28. “It is important to notify the tax rates because without notifying tax rates, the government cannot collect taxes during the intervening period—from April 1 to the next full-scale budget after the new government is sworn in," says Divya Baweja, partner at Deloitte India.

Here are some expectations from Budget 2019 on personal tax front:

1) There are expectations that the government may increase the basic income tax exemption limit. Basic exemption limit may be raised from Rs. 2.5 lakh to 3 lakh for individuals less than 60 years, says Kuldip Kumar, partner at PwC India. For individuals 60 years or more but less than 80, the limit may go up to 3.5 lakh from 3 lakh, he says. Women taxpayers may get higher basic exemption or even parity with senior citizens, he adds. Finance Minister Arun Jaitley in the first budget of this NDA government in 2014 had raised the tax exemption limit to 2.5 lakh from 2 lakh.

2) To incentivise savings, the government may also increase the Section 80C deduction limit. “The limit of Rs.1.5 lakh under Section 80C was last revised in Budget 2014-15. We can expect the government to consider revising this limit. With the due passage of time, this limit no longer holds good. An increase in Section 80C limit will help provide more room for tax saving," says Abhishek Rastogi, partner at Khaitan & Co. Kuldip Kumar of PwC expects the Section 80C limit to go up to 2 lakh.

3) A rationalisation of income tax rates could also be on the cards. “Currently, there is a steep jump from 5% to 20% for income between 5 lakh to 10 lakh. Some rationalization is expected here. A decision may also be taken to lower the highest personal income tax rate from the existing 30% to 25%," says Rastogi. Currently, income up to 2.5 lakh is exempt from personal income tax. Income between 2.5 and 5 lakh attracts 5% tax, while that between 5 lakh and 10 lakh is levied with 20% tax. Income above 10 lakh is taxed at 30%.

Industry body CII has recommended that income below 5 lakh should be exempt while that between 5 lakh and 10 lakh should be taxed at a lower rate of 10%. For those having income between 10 lakh and 20 lakh, says CII, the tax rate should be 20%, and those who earn over 20 lakh should be taxed at 25%.

4) The government may also offer more tax benefits on housing loans. “Considering a delay in housing projects and also the inching up of interest rates, interest on housing loan for a self-occupied house property, which is limited to 2 lakh, may be enhanced to Rs. 2.5 lakh and the set-off cap of adjusting loss from house property against other heads of income may also be accordingly raised from 2 lakh to 2.5 lakh," says Kumar of PwC.

5) In Budget 2019, the government may also formalize the recent changes announced in the NPS or National Pension Scheme, says Divya Baweja of Deloitte India. The changes are expected to come into force from April 1, he adds. The Union Cabinet in its meeting on 6 December had approved a proposal to increase the tax exemption limit for lump sum withdrawal from NPS on exit to 60%. (At present, 40% of the total accumulated corpus utilized for purchase of annuity is already tax-exempt. Out of 60% of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% is tax-exempt and the balance 20% is taxable.)

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