Budget 2019 Impact on Middle Class
This year’s Budget, which was largely expected to be a vote on account, without any changes in the tax law, surprised taxpayers by containing eight amendments, all of which are beneficial to taxpayers. The additional pleasant surprise was that, other than these eight proposals, all mentioned by finance minister Piyush Goyal in his Budget speech, there were no lurking surprises in the fine print of the law proposing the changes.
The increase in the taxable income limit for rebate from ₹3.50 lakh to ₹5 lakh effectively means that many taxpayers with gross incomes of even a little over ₹8.35 lakh may not have to pay any tax at all, given the deductions for tax savings investments of ₹1.5 lakh, the additional deduction of ₹50,000 for National Pension System, ₹75,000 for mediclaim premium, ₹10,000 for bank interest, and standard deduction of ₹50,000 for salaried employees. However, though no tax may be payable by such taxpayers, if their income is more than ₹2.5 lakh, they would still have to file a return of income. Besides, taxpayers with taxable income in excess of ₹5 lakh would not benefit in any manner by the change in this rebate, and would continue to pay the tax as before.
Two significant benefits for the middle class have been those relating to house property the exclusion of one more house from the purview of notional rent, and the extension of the benefit of exemption of long-term capital gain on reinvestment in a residential house to purchase up to two houses.
The exemption for long-term capital gains on sale of a residential house was restricted to the cost of acquisition of one residential house in 2014. This has now been increased to the cost of acquisition of two residential houses. Therefore, if a person wishes to buy two residential houses at two different locations out of the sales proceeds of one residential house and claim exemption for long-term capital gains, he can now do so. The limit of ₹2 crore for the capital gain and the once-in-a-lifetime nature of this facility does restrict the number of cases where this can be availed of. In the similar exemption for sale of assets other than residential house, there is no similar amendment. In that case, the exemption will continue to be available only for the cost of acquisition of one residential house.
The increase in the limit for tax deduction at source (TDS) on bank interest will reduce the woes of senior citizens and persons with incomes below the taxable limit, who attempt to distribute their fixed deposits across various banks, to avoid a part of their low incomes getting locked up in pending refunds, due to applicability of TDS. Of course, even if the interest exceeds ₹40,000, they still have the option of furnishing Form 15G or Form 15H, as the case may be, to avoid deduction of TDS. Unfortunately, Form 15G cannot be furnished in a case where the interest income being paid by the bank exceeds ₹2.5 lakh, though no tax may be payable on account of the rebate. One hopes that this provision will also be amended to increase the limit of interest where such form can be furnished.
All in all, this has been a reasonably good budget for most taxpayers, particularly those with lower levels of income.
The following benefits of Budget 2019 for Middle Income Groups
- No tax on income up to ₹500,000. The benefit will be available through rebates. The current limit for zero tax is ₹250,000. The benefit will be to only those taxpayers whose total income doesn’t exceed ₹500,000. The moment it exceeds ₹500,000, tax will start from ₹250,000 at 5% up to ₹500,000 and 20% from ₹500,000 to ₹1 million. Piyush Goyal, the interim finance minister who presented the budget, also clarified that even people will gross income of up to ₹650,000 may not be required pay any income tax if they make investments in provident funds, specified savings and insurance etc.
- No tax deduction at source (TDS) on interest received from banks and post office deposits for up to ₹40,000, increased from ₹10,000. That means interest accrued from fixed deposits of up to ₹670,000, assuming an interest of 6%, will not be taxed.
- No TDS on house rent up to ₹240,000 a year, raised from ₹180,000 earlier. This move gives tax-related relief to individuals who are dependent on rental income.
- Standard deduction from income increased to ₹50,000 from ₹40,000 a year.
- Standard deduction is a fixed amount of deduction, which can be reduced by salaried taxpayers, from their gross salary. The feature was introduced during last year’s budget after the Finance Act 2005 was scrapped.
- If you own two self-occupied properties, there will be no ‘notional rent’ on both properties. Currently, there notional rent was applicable on all properties but one, even if they were occupied by the same family. This will benefit families that live apart due to work or other reasons.
- Exemption from Capital Gain on sale of residential house under Section 54 has been extended to purchase of 2 residential house subject to maximum capital gain of ₹20 million. It’s not that government left the poor section of the economy out of the conversation. When keeping the reservations that are already in place intact, the government has ensured an additional 10% of reservation for the poor in government jobs and education. An additional 600 billion has been allocated towards the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) as well.
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