Impact of Interim Budget 2019 for the Common Man
India’s Union Budget is a key event of the financial calendar and one that has the potential to significantly impact the lives of every Indian tax payer. In many ways the run up to Interim Budget 2019 was interesting. Its close proximity of general elections aside, many had expected that a number of populist announcements would be made. Yet in many ways, Interim Budget 2019 has failed to deliver on the expectation that the tax burden on the common man will be reduced significantly. The following are the key budget announcements that are expected to impact the common man.
Complete Rebate on Net Taxable Income up to Rs. 5 lakh
This time around, a key expectation regarding the revision of income tax slab rates remained unfulfilled. The good news from Interim Budget 2019 is however the increase in the Section 87A rebate limit. From AY 2020-21 onwards, the maximum rebate that tax payers can avail under this section has been increased to a maximum of Rs. 12,500. This implies that the effective tax rate will be zero for those with net taxable income of up to Rs. 5 lakhs in the fiscal. However, do remember that as the tax slabs have remained unchanged, those with net taxable income higher than Rs. 5 lakh during the fiscal will not be able to benefit from this rebate and they will still have to pay the 5% tax rate applicable to the Rs. 2.5 lakh to Rs. 5 lakh slab. The following is an example of how the limit will work:
| Net Taxable Income |
Rebate u/s 87A (for AY 20-21) |
Tax Payable |
| Rs. 3 lakh | Rs. 2500 | Nil |
| Rs. 5 lakh | Rs. 12,500 | Nil |
| Rs. 6 lakh | Nil | Rs. 32,500* |
*Calculation of tax is 5% on (500,000 – 250,000) + 20% on (600,000 – 500,000) = 12,500 + 20,000 = Rs. 32,500.
Increase in Standard Deduction for Salaried Class
Interim Budget 2019 has introduced a bit of cheer for the salaried class by increasing the standard deduction from the earlier Rs. 40,000 level to the new level of Rs. 50,000. The actual decrease in tax burden after this Rs. 10,000 increase in standard deduction is limited to Rs. 3,000 (excluding cess/surcharge) for salaried individuals in the maximum taxation bracket of 30% while those with lower income will get an even lower tax burden reduction.
Higher TDS Threshold for Bank and Post Office Deposits
In the current fiscal (FY 2018-19), term deposits (fixed deposits and recurring deposits) are liable to witness TDS (tax deducted at source) at 10% of the interest earned. This is currently applicable if the interest earned exceeds Rs. 10,000 for the fiscal. Interim Budget 2019 has proposed an increase in the threshold for TDS deductions to be increased to Rs. 40,000 annually. One should, however, remember that when filing your income tax return for the current year i.e. AY 2019-20, the TDS limit on interest from fixed deposits is still Rs. 10,000. Additionally, you will have to continue declaring income from term deposits when filing your ITR and pay the requisite tax even after the higher TDS threshold comes into effect.
Expansion of Capital Gains Rollover Benefit
In its current form, the capital gains rollover benefit under section 54 of Income Tax Act, 1961 applied to a single house only. The scope of Section 54 has now been expanded to allow purchase of two residential properties instead of one for a capital gains limit of Rs. 2 crore. There are however a few factors to consider here such as the fact that the new house(s) have to be bought one year before or within 2 years from the date of transfer of the old property and the fact that this is once in a lifetime benefit. In case of purchase of an under construction house, this time limit is greater at 3 years instead of 2 years. By using an income tax calculator, you can see that this Section 54 benefit, if used to the full extent of Rs. 2 crore, can potentially decrease an individual real estate investor’s tax burden by Rs. 40 lakhs (excluding cess and surcharge based on real estate long term capital gains at the rate of 20%). The Section 54 benefit is not applicable to commercial properties.
Higher TDS Threshold on Rental Income
Under existing rules of Section 194(I) of the IT Act 1961, TDS is deductible by a renter (at rate of 5%) in case he/she is paying rent in excess of Rs. 1.8 lakh to the landlord during a financial year. This rule has now been amended for FY 2019-20 and the TDS deduction threshold has been increased to Rs. 2.4 lakh. Thus, while TDS will not be deducted for annual rent payment of up to Rs. 2.4 lakh in a fiscal, the income from rental property will have to be shown by the landlord when filing ITR and tax will be payable as per the applicable slab rate.
Impact of Interim Budget 2019 on the Common Man
While there were a few benefits for the common man in the announcements made during Interim Budget 2019, the overall impact on tax payers is expected to be limited. This is because some of the announcements such as higher TDS thresholds might seem like a good thing, but these do not actually have any impact on the total tax payable by the common man. Moreover, the higher tax rebate will also have limited benefit because those with net taxable income over Rs. 5 lakh are not eligible for the 87A rebate and will have to pay tax as per their applicable slab rate. After consideration of these facts it should be clear that Interim Budget 2019 did not, in fact, provide major tax exemptions or benefits for the common man.
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