The current government is set to complete its five-year term in May, and so it presented an interim budget on 1 February rather than a full budget.
Be it farmers, professionals, businessmen, the salaried class or senior citizens, there is something of interest for everyone in the interim budget.
According to convention, the interim budget presented by an outgoing government does not comprise any significant policy announcements or any tax proposals as the same is understood to be the next government’s prerogative.
The interim budget usually lays out the state of the economy, enumerates the various reforms undertaken, allocates the outlays for an interim period and presents the government’s vision for the foreseeable future.
However, in a departure from convention, interim finance minister Piyush Goyal (standing in for Arun Jaitley) said small taxpayers like pensioners, middle class, salary earners and senior citizens need certainty in their minds at the beginning of the year about their taxes. Therefore, certain tax proposals have been introduced for the benefit of such class of people.
Increase in tax rebate
Rebate of income tax up to `2,500 is currently available to individual taxpayers with total taxable income up to `3,50,000. The threshold limit of total taxable income eligible for a tax rebate has been enhanced to `5,00,000. Resultantly, there will be nil tax liability for a resident individual whose total taxable income, after all eligible deductions and set-off of losses, is up to `5,00,000 in a financial year.
This can be understood with an example of an individual who has earned a total annual income of `8,50,000. Let’s presume that the individual makes the necessary investments/incurs the requisite expense and is eligible for the following: deduction of `25,000 for health insurance premium; deduction of `1,50,000 for specified investments like Employee Provident Fund, Public Provident Fund, Insurance Premium, etc; deduction of `50,000 towards contribution to National Pension Scheme and has a loss of `1,25,000 from house property that is eligible for set off. The taxpayer will not be required to pay any tax in this case as the taxable income after these deductions/ loss set off is `5,00,000.
The tax rebate is, however, applicable only to individuals who are tax residents of India. This benefit is not available to non-residents.
No notional rent on 2nd property
Under the tax laws, no taxable value is attributed to one house property occupied by the owner for his own residence. However, the second or additional house properties which are self-occupied are deemed to have been let out and tax is payable on the notionally computed rent.
The interim budget has amended this provision to exempt a second self-occupied property from taxation on notional basis. In case the taxpayer has more than two properties which are self-occupied, then notional rent would need to be computed on the third and additional properties and offered to tax.
It is pertinent to note that the benefit of exemption from tax on notional rent for a second self-occupied property is applicable for both resident and non-resident taxpayers.
Roll-over of capital gains
Long-term capital gains earned by an individual on sale of residential house property is currently exempt from tax if such gains are invested in another residential house in India within the prescribed period, subject to specified conditions.
It is proposed to extend this exemption to cases where the capital gains are invested in two residential houses in India. However, this benefit is applicable only where the long-term capital gain amount is up to `2 crore. Further, the benefit of investment in two residential houses for availing the exemption will be allowed only once in the taxpayer’s lifetime.
This benefit is applicable for both residents and non-residents.
Increase in TDS threshold limit
Any person, other than an individual, paying interest or rent above the specified threshold limits to a resident taxpayer is required to withhold tax at the rate of 10% on such payments. The government has proposed to increase the threshold for applicability of tax deduction at source (TDS) on interest from deposits held in banks, post office and cooperative society. TDS will now be applicable on interest earned above `40,000 as against the current limit of `10,000 per annum.
Similarly, the threshold for applicability of TDS on rent has been increased from `1,80,000 to `2,40,000 per annum.
Increase in the threshold limits will benefit small taxpayers whose income may be below the taxable limit but they still had to file tax returns to claim refund of TDS on interest from Bank deposits or rental income.
In case of non-resident individuals earning interest or rent from India, TDS would be applicable at the highest rate of 30% (plus applicable surcharge and cess). However, where the non-resident individual falls in a lower tax bracket, an application may be filed with the tax officer to issue a certificate for lower or nil deduction of tax. Upon issue of a certificate the TDS would be at the rates specified in the certificate.
With a view to rationalise the levy and collection of Stamp Duty on securities, it has been proposed that stock exchange/depository/clearing corporation be vested with the responsibility of collecting stamp duty on such instruments and disbursing the same to the respective states. Earlier, the stamp duty in such cases was collected by the respective state governments (through collector of stamps).
The levy is proposed to apply on issue and transfer of securities covering shares, debentures, derivatives, government securities and corporate bonds. It is important to note that transfer of securities in dematerialised form were earlier exempt from levy of stamp duty. It is now proposed to remove the above exemption and levy the same rate on transfer of shares even in the dematerialised form.
The levy and collection of stamp duty across securities is a welcome move that will generally reduce cost of transactions as well as simplify the compliance for investors/stakeholders. However, securities in dematerialised mode, particularly listed securities, will now be burdened with an additional cost on account of this levy.
Apart from the above changes, the government has laid down the road map to move further on digitisation of tax compliances and assessments. It is proposed that within the next two years, all scrutiny assessments and verification of returns will be done electronically through a back office manned by tax experts and tax officials, without any personal interface. Demonstrating the trust placed in the taxpayer, the finance minister stated in his budget speech that 99.54% of the tax returns filed during FY2017-18 were accepted without any scrutiny and only the balance returns were picked for revenue audit.
Though an interim budget, it contains provisions to bring cheer to the common man. It is hoped that the full budget to be presented after the general elections would continue the tax reforms, and also ease the compliances for taxpayers at large.
The changes proposed in the interim budget would be applicable to which year?
The budget proposals are applicable to financial year 2019-20, i.e. the period from 1 April 2019 to 31 March 2020.
Is there any change in the rate of tax applicable to individual taxpayers for financial year 2019-20?
There is no change in the rate of tax, it shall remain the same as were applicable for the financial year 2018-19. Rate of tax applicable to a resident individual below 60 years of age and to non-resident individuals is as under:
Total income of up to ₹2,50,000: Nil tax
Total income above ₹2,50,000 and up to ₹5,00,000: 5% of the amount above ₹2,50,000
Total income above ₹5,00,000 and up to ₹10,00,000: ₹12,500 + 20% of the amount above ₹5,00,000
Total income above ₹10,00,000: ₹1,12,500 + 30% of the amount above ₹10,00,000
Resident individuals with total taxable income up to ₹5,00,000 will be eligible for a tax rebate up to ₹5,000; however, they will have to file a tax return to claim the rebate.
Rajashree Sarna contributed to this article.
Vikas Vasal is national leader tax–Grant Thornton India LLP. You can send your queries to email@example.com.