Income tax payers who were feeling ignored for the last two budgets have got a substantial relief in Budget 2019/20. After the significant steps in Budget 2014 to enhance basic income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh and Section 80C deduction limit from Rs 1 lakh to Rs 1.5 lakh, and an additional Rs 50,000 deduction on NPS investment in Budget 2015, the last two budgets did not have any relief for individual income tax payers. However, tax breaks for small tax payers in this Budget have brought back smiles to the common man.
Pay no tax on Rs 5 lakh income: One of the biggest takeaways is that those earning up to Rs 5 lakh will not have to pay any tax. “In the interim Budget, the finance minister has given relief to small income earners, including salaried, pensioners and senior citizens, by introducing a tax rebate for individuals having taxable income of up to Rs 5 lakh. At present, taxable income of Rs 5 lakh attracts a tax of Rs 13,000 (including health and education cess), which will become nil now,” says Divya Baweja, Partner, Deloitte India (Personal Tax).
This benefit will be available in the form of the Section 87A rebate. Earlier, people with taxable income up to Rs 3.5 lakh or below were eligible for a tax rebate of Rs 2,500.
What this Budget has done is to raise the rebate to Rs 12,500 and enhance the eligibility criteria from taxable income of Rs 3.5 lakh to Rs 5 lakh. This is the income which is arrived at after all exemptions/deductions.
Special gift for salaried class: The standard deduction introduced last year has been increased from Rs 40,000 to Rs 50,000. It is a fixed deduction available only to those with income from salary or pension.
The other big announcement is regarding gratuity income. Gratuity is one time big income for those retiring after years of hard work and it pinches really hard if you have to pay tax on this amount. As salary levels have risen significantly over the years, so has the gratuity amount that employees get. To accommodate rising inflation and salary levels, the government has proposed to increase the income tax exemption on gratuity income from Rs 10 lakh to Rs 20 lakh. This will result in huge savings for people with long years of service.
Benefits not limited to low-income group: While the Budget 2019 may look like more focused towards giving relief to people in lower income tax brackets, a closer look reveals benefits for those in middle as well as higher income groups.
If you are claiming deduction under Section 80C of up to Rs 1.5 lakh, there will be no tax on income up to Rs 6.5 lakh. “Individuals with gross income of up to Rs 6.5 lakh will not have to pay any tax now if they make tax saving investments of Rs 1.5 lakh under Section 80C of the Act,” says Divya of Deloitte.
Besides Section 80C, there are other options as well to save even higher taxes. Our illustration shows how people earning up to Rs 10.25 lakh can end up paying zero tax if they tick the right boxes. This can be higher if you are repaying an education loan either for self or for your child. If you have a self-occupied house purchased with home loan but are living on rent in a different city, you may even claim the benefit of house rent allowance. The extent of the benefit will depend on your basic salary, HRA allowance and the city where you live. People in the 30 per cent income tax bracket will end up saving at least Rs 3 lakh on account of change in gratuity exemption if they get a gratuity of Rs 20 lakh or above.
Real estate booster: One of the most sought after relief for middle and high income groups came in the form of real estate sops.
The Budget gives the much-needed boost to the real estate sector, which faced significant correction and stagnation after demonetisation and was struggling to recover from the big jolt. The first proposal was with regards to multiple self-occupied properties. From financial year 2019/20, no tax will be levied on the second house property if one owns two self-occupied houses. Earlier, if you owned two house properties, one was deemed to be rented out and tax was levied on the notional rent. This has delighted many people. Pooja Sinha, an IT industry professional, is delighted as she will no longer be required to pay tax on notional income from second self-occupied property. She, along with her husband, has two houses in Gurgaon, Haryana. They also own two houses in her in-laws’ home town Kolkata. She says in the current scenario when people move to different cities based on professional requirement, it becomes essential to have two self-occupied houses, one in the home town and one at the place of work or children’s education. The government decision will help her save more tax.
The Budget has also proposed that the benefit of rollover of capital gains tax could be used to buy up to two houses if capital gains is up to Rs 2 crore. Earlier, if you had earned capital gains from sale of house property, you could have used it for construction or purchase of another house and save on capital gains tax under Section 54. These moves are bound to improve sentiment in the real estate sector and push up demand going forward.
Marginal gain for senior citizens: Most senior citizens have pension income or interest income under Rs 5 lakh per year. With standard deduction going up from Rs 40,000 to Rs 50,000, salaried senior citizens with pension or salary income will end up saving more tax.
The limit after which TDS is deducted on interest earned on deposits in banks and post offices has been raised from Rs 10,000 to Rs 40,000. This will help senior citizens, especially the ones who have taxable income of Rs 5 lakh or below and count on interest income after retirement as they will not have to go through the hassle of paying tax first and seeking refund later if they have a taxable income.