This interim Budget was expected to provide benefits for the middle class. There were some welcome announcements from the recently-appointed Finance Minister Piyush Goyal during his speech. Overall, there were lots of takeaways for home owners. Some of the benefits may appeal to senior citizens, prospective home buyers, and anyone whose taxable income is Rs 5 lakh or less.
Let’s look at some key takeaways from Goyal’s speech.
No slab change, but only low income groups to benefit
Goyal’s announcement of an increased rebate was earlier mistaken on social media as reworked tax slabs. However, the slabs remain unchanged. So what changed? Only the rebate on income tax. If your taxable income is Rs. 5 lakh or less, you get a rebate equal to your tax liability. Therefore, however high your income, if your taxable income after various deductions can be brought down to Rs 5 lakh, you pay no tax.
For example, if your gross income is Rs 6.5 lakh, you can invest Rs 1.5 lakh in tax-saving schemes such as PPF and reduce your taxable income to Rs 5 lakh and pay no tax. The new rebate can go as high as Rs 12,500 which equals your liability at the taxable income level of Rs 5 lakh. However, if your taxable income is more than Rs 5 lakh, you get not a rupee of this rebate, and will be taxed as per your slab. Persons at lower income levels would cheer the move. But there’s nothing in the announcement for persons earning above this limit who were expecting a revision in the slabs.
Higher standard deduction means up to Rs 3,000 saved
One year ago, Finance Minister Arun Jaitley had announced a standard deduction of Rs 40,000 in lieu of medical reimbursements and transportation allowance. This year, Goyal raised the deduction limit to Rs 50,000. This small change helps you save an additional Rs 3000 if you’re in the 30 percent tax bracket, and it was the only announcement that would impact all tax filers regardless of age or income level. However, this is small consolation.
Benefits for home owners
Several announcements are geared to help home owners, especially those with multiple properties. These are often senior citizens. First up, there’s the waiver of tax on notional rent on a second property. If a tax payer has more than one residential property, his other properties are deemed let-out. If they have no tenants, they are considered as earning a notional rental income. Where there’s income, even notional income, tax must be paid. Therefore, the tax waiver is welcome because in many cases, the second house may not be generating rent.
A famous recent example was Sachin Tendulkar being penalised by the Income Tax Department for not paying tax on notional rent. (A tribunal ruled in the cricketer’s favour later.) Tax payers can now hope to have multiple homes and not worry about taxes on income they are not earning. Secondly, long-term capital gains from property sale can be rolled over into two new properties from the earlier limit of one. And the TDS limit on rental income has risen from Rs 1.8 lakh to Rs 2.4 lakh. These announcements are unlikely to bring cheer to tax payers who don’t own property and earn rental income.
No relief from GST on real estate
There’s a massive, 12 percent GST on residential properties under construction. This pinches home buyers especially in big cities where cost of home ownership is astronomical. Goyal spoke about a gradual reduction of GST slabs, and there were expectations that the slab would be lowered from 12 percent to 5 percent. Such an announcement would have brought cheer to real estate. But Goyal palmed off this decision to the future, announcing only the formation of a Group of Ministers to oversee the matter.
Higher TDS limit on interest, but who benefits
Another announcement that will not impact most tax payers is the increase in TDS limit on interest earned from savings accounts. Under Section 194A, the TDS limit on interest from savings bank accounts and post office accounts (excluding all interest from FDs, RDs and time deposits) was Rs 10,000. This will be revised to Rs 40,000. For this to be useful in any manner, you need to have more than Rs. 10 lakh in a savings account earning 4 percent per annum. Goyal said this move would help small depositors and non-working spouses. But they are unlikely to maintain such high levels of liquidity and would instead invest the money in fixed deposits, mutual funds or any other attractive instrument to earn returns higher than 4 percent. Therefore, this decision will have a very low impact.
Overall, the Budget would benefit senior citizens and low-income groups including persons starting their careers. The basic income of Rs 6000 per annum for farmers and pension income for unorganised sector workers up to Rs 3000 per month are a start but the numbers are low. Those aspiring to buy a home will also welcome the extension of the PMAY benefits by one year to 31 March 2020. But largely, the middle class will find the interim budget underwhelming.
(The writer is CEO, BankBaaar.com)
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Updated Date: Feb 04, 2019 10:10:05 IST