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March 25, 2019

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Salient Features of Budget 2019


- S. R. Patnaik, Partner & Head – Taxation [ Cyril Amarchand Mangaldas ]

S-R-Patnaik

The Finance Bill, 2019, proposes to increase the benefit of standard deduction from the existing INR 40,000 to INR 50,000 to provide additional relief to salary earners and pensioners...

With the elections looming large, interim Finance Minister Piyush Goyal (“FM”) presented the interim budget (or vote on account) to the Parliament. As expected, it sounded more like an election manifesto instead of a budget and most part of the budget was spent on explaining how the present Government has been able to bring in transformational changes in the country through several significant steps.

There were not many significant changes from a tax law perspective as the FM attempted to present a “please all” budget. The changes proposed by him are as follows:

No tax for individuals earning up to INR 500,000

The FM proposed to exempt taxpayers earning upto INR 500,000. This is going to provide complete respite to a large number of marginal taxpayers. In fact, combined with other deductions and incentives, the actual amount could go beyond INR 700,000.

However, instead of changing tax slabs, which would have meant all taxpayers would have received the benefit, the FM proposed to give such benefit only to intended beneficiaries by suggesting a change to Section 87A of the Income Tax Act, 1961 (“IT Act”).

The Finance Bill, 2019, proposes an increase in the amount of tax rebate from INR 2,500 to INR 12,500 for individuals earning up to INR 500,000 (which is the tax payable for somebody having a taxable income of INR 500,000), thereby making sure that individuals who earn more than INR 500,000 would not be entitled to any tax rebate / benefit.

Increase in standard deduction for salaried employees

The Finance Bill, 2019, proposes to increase the benefit of standard deduction from the existing INR 40,000 to INR 50,000 to provide additional relief to salary earners and pensioners.

tax

Once in a lifetime opportunity to claim capital gains exemption by investing in two residential houses

Section 54(1) of the IT Act currently provides for exemption from capital gains to an individual or HUF earned from the sale of residential house property, being a long-term capital asset, if such capital gains are invested in another residential house property acquired or constructed in India. The aforesaid investment is to be made in the period of one year before and two years after the date of transfer of the residential property and the taxpayer is allowed to invest in only one residential house in India in order to claim such exemption.

Finance Bill, 2019 proposes that in case the capital gains arising to the taxpayer do not exceed INR 2 crores, he would have an option to invest in two residential house properties in India as against one. However, if the taxpayer exhausts this option of claiming capital gains exemption by investing in two residential house properties in a particular assessment year, this option will not be available for that taxpayer for any other assessment year, i.e. this option is available only once in a lifetime.

No deemed rental income on two selfoccupied residential houses

Under the existing provisions of house property, where a taxpayer has more than one self-occupied residential house, then exemption from taxation for the house property income is available only for one house and other houses are deemed to be let out and their notional rent is taxed under the head Income from House Property.

Finance Bill, 2019 proposes to increase the exemption from taxation for notional rent from one self-occupied house to two. The aforesaid amendment has been proposed keeping in view the needs of the middle class strata of taxpayer having to maintain houses across two locations on account of their job, children’s education, care of parents, etc. Thus, the taxpayer having more than one residential house can now treat the second residential house as self-occupied and avail exemption from levy of tax on such notional rent.

Consequently, deduction with respect to interest on borrowed capital can also be claimed for both the houses. However, the aggregate monetary limit for the deduction would remain same, i.e., INR 200,000 per individual taxpayer.

Increased threshold limits for withholding taxes

Finance Bill, 2019 proposes to increase the threshold limits for withholding tax requirements in the following situations:

(i) Interest on deposits

Under the existing provisions of Section 194A of the IT Act, tax has to be withheld on payment of interest income like interest on bank deposits, post office deposits, etc. at the rate of 10% if the interest amount exceeds INR 10,000.

It is being proposed to increase the interest threshold limit from INR 10,000 to INR 40,000.

(ii) Rent
Under the existing provisions of section 194I of the IT Act, tax has to be withheld in case any payment towards rent is made in excess of INR 180,000 per annum.

Finance Bill, 2019 proposes to increase the threshold from INR 180,000 to INR 240,000 per annum.

IT-ACT

Amendments for the real estate sector

In order to boost the sagging fortunes of the real estate sector, the following provisions have been proposed by Finance Bill, 2019:

(i) No tax on unsold inventory for 2 years
As per the current provisions, in case a property is held as stock-in-trade and not let out for the whole or part of the financial year, the notional rent for such property is taken as INR NIL for a period of one year from the end of the financial year in which certificate of completion of construction of such property has been obtained.

Finance Bill, 2019 proposes to extend the said period from 1 year to 2 years. Thus, if a taxpayer has a constructed property which cannot be sold or let out for a period of two years from the end of the financial year in which certificate of completion of construction of such property has been obtained, he will not be liable to pay any tax on notional basis.

(ii) Increased avenues for affordable housing
Presently, Section 80-IBA of the IT Act provides a deduction of 100% of profits and gains arising from the business of developing and building affordable housing projects if such projects are approved on or before March 31, 2019.

Finance Bill, 2019 proposes to increase the period within which projects are approved for one more year to March 31, 2020. The said amendment has been proposed to accord more time and options to affordable housing.

Disclaimer – The article is authored by Mr. S. R. Patnaik, Partner & Head – Taxation. The author was assisted by Reema Arya and Akshara Shukla.

 

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