IndiaLends Advisory

By IndiaLends Advisory

Feb 06, 2019

Budget Highlights 2019: What You Need To Know

On 1st February 2019, the current finance minister Piyush Goyal presented the interim budget for the year 2019-2020. The budget is claimed to middle-class friendly by breaking the convention of making major tax reforms. So, does the budget 2019 promise to be a budget for the middle-class families? Let’s find out.

Here are the major highlights of budget 2019:


→ Full Tax Rebate for Income up to ₹5 lakhs

This has been one of the biggest tax reforms in the history of India. The existing government has increased the income for tax exemption to ₹5 lakhs as opposed to ₹2.5 lakhs for the previous years. This means individuals will be able to save up to ₹12,500 under this bracket. However, this does not change the income tax slabs.

What does this mean?

Anyone earning up to ₹5 lakhs will be exempted from taxes. However, anyone earning above ₹5 lakhs will follow the existing tax slab rates which are as follows:

 

Taxable income slabs

Income tax rates and cess

Up to Rs 2.5 lakh

Nil

₹2,50,001 to Rs 5,00,000

5% of (Total income minus Rs 2,50,000) + 4% cess

₹5,00,001 to Rs 10,00,000

₹12,500 + 20% of (Total income minus Rs 5,00,000) + 4% cess

₹10,00,001 and above

₹1,12,500 + 30% of (Total income minus Rs 10,00,000) + 4% cess

This means this tax reform will help an individual get a rebate of ₹12,500 as opposed to ₹2500 which is what an individual can save.


→ Standard Deduction increased to ₹50,000

Finance Minister Arun Jaitley in Budget 2018 had introduced a standard deduction of ₹40,000 for the salaried class. The standard deduction is a fixed amount – in this case, ₹50,000 – that can be reduced by salaried taxpayers from their gross salary. This was introduced to replace the existing deductions of ₹15,000 for medical reimbursements and ₹19,200 for transport allowance.

What does this mean?

This means you can simply reduce ₹50,000 from your gross income without making any investments. This is a flat deduction of ₹50,000 from the income you earn. In fact, an individual earning ₹5.5 lakhs per annum will be able to save taxes with the help of standard deduction.


→ TDS threshold on rental income raised to ₹2.4 lakhs

Individuals earning from rent are supposed to pay taxes on the rent earned. This comes under ‘Income from House Property’ of the different types of income heads. Earlier, rental income of up to ₹1.8 lakhs was exempted from income taxes. This has now been increased to ₹2.4 lakhs per annum.

What does this mean?

Any individual earning rental income of ₹2.4 lakhs per annum will not be required to pay income tax. For income above this, the tax rates prevail.


→ TDS on interest income to ₹40,000

Under the current tax reforms, the interest income above ₹10,000 is taxable. However, in budget 2019, TDS on interest income is exempted for interest income up to ₹40,000. This will benefit senior citizens and small depositors who rely on the interest earned from saving deposits.

What does this mean?

There will be no TDS on the interest income earned on different deposits if clubbed together, adds up to ₹40,000. If the income is above ₹40,000, the current tax rates prevail.


→ No tax on notional rent on the second self-occupied house

In budget 2019, the interim finance minister Piyush Goyal has removed the income tax on deemed rent from the second house. This will benefit individuals who don’t have an outstanding loan on their second house. This will also remove the dispute of computing notional rent.

What does this mean?

This benefits only individuals who don’t have outstanding loans on the second self-occupied house. However, this will complicate matters for people who have it. This is because this will take a hit to those who use housing loan interest on their second house for tax planning. With this new tax reform, the maximum interest benefit allowed on both houses will be limited to ₹2 lakhs. Moreover, the carry-forward of housing interest for the second house will no longer be allowed.


→ Section 54 Exemption now available on the second house property

Section 54 allows an exemption on capital gains earned from the sale of house property. In budget 2019, this has been extended to the second house, given that the capital gain is invested in another residential property and does not exceed ₹2 crore. Moreover, this can be exercised only once in a lifetime.

What does this mean?

This exemption is going to benefit families who maintain two houses due to a job, children’s education, parents, etc. However, this is a one-time tax saving opportunity.

So, there you go! These are the main budget 2019 highlights that are going to affect the middle-class families.

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