Budget 2019 - Taxation

Finance Minister Piyush Goyal presented the most awaited union budget in Lok Sabha on Friday, 1^st February 2019. Goyal was appointed as the interim finance minister on January 23  with Arun Jaitely undergoing medical treatment in United States. Here is a look at some of the major tax changes proposed in the budget.

• Income Tax slabs will remain the same for FY 2019-20. Yes, there is no change in the slab rates for the financial year 2019-20. Tax Rebate Limit under 87A has been increased from Rs. 3.5 lakhs to Rs. 5 lakhs for taxpayers. The maximum limit of the tax rebate is also increased to Rs.12,500 from the present limit of Rs. 2,500. Hence The benefit of this rebate is available only to the middle and lower middle class assesses only and assesses having taxable income more than 5 Lakhsmay not have much of the benefit from this.

How will it be implemented?

Let us understand this with a simple example of

Mr. A has a total taxable income of Rs 5 Lakhs and Mr. B has an income of Rs.10 Lakhs.
Now first Let us see how their tax computation use to happen before the proposed changes

Now let us see the computation after the proposed changes

• No tax on notional rent of second Self-occupied House under “Income from House Property” i.e. up to two self-occupied house properties to be considered for exemption.

What Does This Mean?

If you have three house properties, out of which you live in one of them, and the other two are not given on rent, then any two out of three house properties can be considered as 'self-occupied'. The third one will then be considered as deemed to be let out and taxed accordingly.
Earlier, if an individual had more than one house, then apart from the self-occupied property, the second home was subject to income tax on notional rental income. This meant that even if the second house was lying vacant, an individual was required to pay tax on the notional rental income (calculated as per tax rules). Currently, this second property is treated as a deemed-to-be let out property and is treated like a rented property even if it not given on rent, as per current income tax laws. However, once the proposal made in the budget 2019 is passed by the Parliament, you will not be required to pay income tax on second house property.

What about the interest on housing loan and carry forward Losses?

The deduction for interest on housing loan for the two self-occupied house properties shall not exceed Rs 2 lakh. Remember currently, on your second house property, you could carry forward the losses up to 8 assessment years in case the loss from house property exceeds Rs 2 lakh in a single fiscal year. After the proposal is passed, you will not be able to carry forward these losses from your second house property.

• TDS limit under Section 194A hiked from Rs 10,000 to Rs 40,000 on Post Office Savings and Bank Deposits.

• Standard Deduction for the salaried class increased from Rs 40,000 to Rs 50,000.

What is Standard Deduction?

It is a fixed amount of deduction which can be reduced by salaried taxpayers, from their gross salary. It was introduced by the Arun Jaitley in the budget of 2018 last year. Interestingly, the provision of Standard Deduction was earlier available but was abolished in the Finance Act 2005. It was proposed that this deduction would replace then existing transport allowance of Rs 1600 per month and medical allowance of Rs 15,000 per annum. They were usually deducted from the gross salary and claimed as an exemption.

How does it affect you?

This Standard deduction will be playing a great role for in the taxation of those assesses who are having a total taxable income of more than Rs. 5 lakhs

• Section 54 exemption now available on the second house property, provided the capital gains is less than or equal to Rs. 2 crores – to be availed only once in a lifetime.

How Is this Going to work?
Under section 54 of the I-T Act, to save on the capital gains made on the sale of a residential property, one is currently allowed to invest only in one house property. The Finance minister in the budget speech stated that the benefits roll over exemption of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses.
Are there any conditions attached to it?
Well yes, of course, there are certain conditions attached to it :
To claim the exemption, a new residential house property must be purchased 1 year before the sale or 2 years after the sale of the property/asset or constructed within 3 years of the sale of the property/asset. The benefit is available only if the new residential properties are situated in India.

This benefit can be availed only once in a lifetime.