From tax rebate to hike in standard deductions: Salaried, middle-class get avenues to save more

The interim Budget 2019 has put focus on the development of rural India, nation-building and in providing a better quality of life to the poor. The Budget is pro-people with specific benefits for the economically weaker sections, farmers, middle-class, salaried individuals and pensioners.

With the intent of reducing the tax burden on the middle-class and salaried individuals, finance minister Piyush Goyal proposed a number of tax benefits.

The key takeaways from the 2019 Budget from a personal tax perspective are as under:

From tax rebate to hike in standard deductions: Salaried, middle-class get avenues to save more

Representational image. Reuters.

Increase in tax rebate for individuals

There is no change in the income tax and slab rates. Earlier, the tax rebate under Section 87A of Rs 2,500 was available to resident individuals whose total income did not exceed Rs 3.5 lakh per annum.

Now it is proposed to increase the rebate to Rs 12,500 for resident individuals whose total income does not exceed Rs 5 lakh per annum.

Accordingly, in the case of resident individuals having total taxable income up to Rs 5 lakh, no tax will be payable. This will result in a tax saving of Rs 13,000 (including 4 percent cess) for resident taxpayers having a total income of Rs 5 lakh.

Increase in standard deduction

The 2018 Budget reintroduced standard deduction for salaried individuals. The current limit of standard deduction of Rs 40,000 per annum is proposed to be enhanced to Rs 50,000 per annum.

Relief from taxability of notional rent on second self-occupied property

Presently, only single house property can be considered as a self-occupied property, and any additional house property which is vacant, is treated as deemed to be let out property. Hence, notional rent was required to be offered to tax in respect of such additional properties.

The finance minister has now proposed that the second property that is vacant can be treated as self-occupied property. Accordingly, notional rent on such second property will not be taxable.

The exemption under Section 54 extended to investment in two house properties

Earlier, exemption under Section 54 was available in respect of long-term capital gains on sale of residential property provided the individual invests the capital gains in another residential property. However, in the interim Budget, the finance minister has relaxed the condition that the capital gains should be utilised for purchase/construction of only one residential property.

Now it is proposed that capital gains exemption will be available even if long-term capital gains are utilised in purchase/construction of two residential properties. However, the said rollover of capital gains is restricted for long-term capital gains arising up to Rs 2 crore and this exemption will be available only once in a life time.

Amendment in TDS limits

The finance minister has increased the threshold limits for TDS in respect of the following income: 

Interest income from bank/post office deposits (Section 194A): The limit has been raised from Rs 10,000 to Rs 40,000. This will reduce the tax compliance burden of the small depositors and non-working spouses who have to otherwise file tax returns and claim a refund of taxes deducted, even if there is no taxable income.

Rental income (Section 194I): The current limit of Rs 1.8 lakh per annum in respect of deduction of tax on rent payments has been increased to Rs 2.4 lakh per annum.

(Homi Mistry is partner with Deloitte Haskins and Sells LLP; Niji Arora senior manager-Deloitte Haskins and Sells LLP, Vivek Mistry manager-Deloitte Haskins and Sells LLP and Priya Padmanabhan assistant manager- Deloitte Haskins and Sells LLP, contributed to the piece)

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Updated Date: Feb 07, 2019 14:03:51 IST

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