Tax benefits in budget makes it easier to own two houses

Tax concessions proposed in the interim budget 2019-2020 for the salaried classes will apply to the income earned by them from April itself, with the assessment year being 2020-2021 for the same. For example, for the income earned in financial year 2018-19 (April-March), the assessment year is 2019-20.

A full-fledged union budget, likely to be presented in July, could alter these provisions, but the government has taken a gamble, promising voters what is in store for them if they vote the Bharatiya Janata Party back to power. Surely, the BJP can’t go back on these proposals when it presents the union budget if it comes back to power. It also creates a moral bind on the Congress and other parties to not alter these proposals in case they form the government in May.

A budget is a Money Bill and hence people needn’t worry about it getting approved by the Parliament since BJP is in a minority in the Rajya Sabha. It only needs the approval of the Lok Sabha where the party has a majority.

As per the interim budget, all income up to ₹5,00,000 in the year will be tax-free. If you invest more than ₹5,00,000, you can still end up not paying any tax up to a certain limit of income. It all depends on the amount of investments you make under various sections of the Income Tax Act. To begin with, any amount up to ₹1,50,000 in any tax-saving instrument like public provident fund or equity linked savings scheme of a mutual fund that comes under Section 80C will be free from tax.

This means no income tax will have to be paid if you earn up to ₹6,50,000, provided you invest ₹1,50,000 in instruments under Section 80C. Standard deduction has also been raised by ₹10,000 to ₹50,000 and helps the salaried class.

One can save income tax on savings beyond ₹1,50,000 also. This could be savings on premium paid for a mediclaim policy under Section 80D. Up to ₹25,000 premium is non-taxable on a mediclaim policy bought for yourself, spouse and kids. This can go up to ₹50,000 premium paid for policy bought for parents.

A further rebate is allowed on investments up to ₹50,000 in a national pension scheme under Section 80CCD(1B). Interest payment up to ₹2,00,000 on a housing loan is also exempted from tax. If you add standard deduction, mediclaim for self, NPS and interest on housing loan, it all comes to ₹4,75,000. This means you could be earning ₹9,75,000 and still not be paying any income tax.

There’s major relief for people owning two houses. Owning a second house was always a tricky question in these times of job hopping. This was because your second house was always treated as one that you had rented out even if you had not. Even if one used it for ‘self occupation’ purpose, It was ‘deemed’ to be earning an income for the person. The deemed rental income was whatever the prevailing rental in that area was and one had to pay tax on it.

As things stood, a lot of people – and many of them from the so-called ‘middle class’ – never revealed this in their tax returns and hence never paid any tax. The finance minister has made their life simpler and guilt-free. One need not pay any tax on the second house if it’s not rented, a big relief and sort of a bonanza for people owning two houses. It could also reduce litigation in several cases.

In another benefit for house owners and one that will also help realtors, profits from sale of a property can be used to buy two houses to save on capital gains tax. Earlier, it could be used to buy only one property and if the cost of the new asset was less than the gains from the sale of the first one, then the remains gains was taxed. This could also help in avoiding creation of black money.