Union Budget 2019 Simplified: Tax Deductions and Rates for A.Y. 2020-21 (F.Y. 2019-20)

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Keeping in mind the upcoming elections, the central government introduced Interim budget on 1st February. The common man always expects the budget to provide relief in the form of lower tax on their income. It was also expected from this year’s budget that the government will abolish LTCG tax, will make changes in the tax slabs and will increase the investment limit under Section 80C.

However, since this was interim budget the FM did not make any such changes but introduced many other relief points which will give benefit to most of the population. The government also announced new measures for farmers, workers of unorganized sector and salaried class.

In this article firstly we’ll see that where we stand as Economy, what all changes are proposed in the budget and how it will impact the economy and household.

Current State of Indian Economy

In the year 2018, the Indian economy has grown close to $3 Trillion in terms of GDP while registering a growth of 7.3% on YOY basis and it is expected to become a $5 Trillion economy in next 5 years. The government has kept a fiscal deficit target at 3.4% for FY 2020.  

Announcements Related to The Economy

Although few, but there were some major changes and proposals announced.

  1. FM launched a pension scheme for workers of the unorganized sector – Pradhan Mantri Shram Yogi Mandhan.
  2. National Kamdhenu Ayog will be set up for National Gokul Mission.
  3. FM announced Rs. 6000 per year income for farmers with land up to 2 hectares.     
  4. Verification, assessment, and scrutiny of the tax return to be completely done online within the next 2 years.
  5. FM also proposes that Income tax returns will be processed in 24 hours and if any, the refund will be released immediately.
  6. Tax-free Gratuity limit increased from Rs. 10 Lakh to Rs. 20 Lakh.
  7. Special allocation and subsidy were announced for farmers pursuing animal husbandry.
  8. Defense budget to be kept at Rs. 3 Lakh Crore.
  9. Allocated Rs. 64,587 Cr. for Indian Railways.

Announcements with respect to Income Tax

It was expected that FM will abolish LTCG tax and will make changes in the income tax slabs to cheer the investors and tax payers but instead he introduced other changes which will definitely cheer up majority of the tax payers in our country.

Tax slab remains unchanged

There was no relief given to tax payers with respect to the income tax rate. The tax slab  remains same as shown below

Income Slab Tax Rate
0 to Rs. 2,50,000 Nil
Rs. 2,50,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 10,00,000 20%
Rs. 10,00,001 and above 30%

No tax for people having taxable income up to Rs. 5 Lakhs

Until now people having income up to Rs. 3 Lakh were eligible for getting a rebate of Rs. 2,500 under Sec 87A. The FM announced to increase the limit from Rs. 2,500 to Rs. 12,500 for the taxpayers having taxable income up to Rs. 5,00,000. This will ensure that all those having taxable income up to Rs. 5 Lakh will pay no more taxes. However, to get this rebate one has to file the income tax return.

Let’s understand with the help of example:

Smita is earning Rs. 5 Lakh, assuming that she is not using section 80c or any other section for any tax rebate.

Income Rs. 5,00,000
Tax charged on income as per slab – 5% Rs. 12,500
Less: Rebate of Rs. 12,500 under Sec 87A (-) Rs. 12,500
Tax Liability NIL

Then what about the taxpayers earning more than Rs. 5 Lak? Do they have any chance to earn tax-free income?

Let us understand this with the help of an example:

Sumeet is earning Rs. 9 Lakh – Assuming he using Sec 80 C, Sec 80 D, Section 24 (Home loan interest payment) up to the deduction limits to save tax.

Income Rs. 9,00,000
Less: Sec 80C Deduction Rs. 1,50,000
Less: Sec 80D Deduction Rs. 50,000  
Less: Sec 24 Deduction Rs. 2,00,000 
Balance Taxable Income Rs. 5,00,000
   
Tax on balance income as per slab (5%) Rs. 12,500
Less: Rebate of Rs. 12,500 (-)Rs. 12,500
Tax Liability   NIL

Standard Deduction Increased

Standard deduction amount increased from Rs. 40,000 to Rs. 50,000.

Ceiling limit of TDS under sec 194A has increased from Rs. 10,000 to Rs. 40,000

Till now bank used to deduct TDS on interest income above Rs. 10,000. Now this limit has been increased to Rs. 40,000. This is applicable only for Post office deposits and Bank deposits

Ceiling limit of TDS under sec 194I has increased from Rs. 1,80,000 to Rs. 2,40,000

Till now the rental income above Rs. 1,80,000 was eligible for TDS. However, in this interim budget the FM has increased the TDS limit to Rs. 2.40 Lakh.

No tax on notional rent on second house

Till now, if someone has 2 properties, one was deemed to be self-occupied and another was deemed to be let out on rent. Even if the second property was vacant for the whole year or was self-occupied, tax on notional rent was applicable. In this budget, FM proposed that no more tax will be applicable on the 2nd property if it is self-occupied.

Capital gain tax exemption

So far, if someone sold his/her property and has capital gain income then he/she used to get the exemption on capital gain tax if within prescribed time limit he/she bought another property.

In this budget, FM announced that now one can use the capital gain amount to buy two properties but within the prescribed time limit.

What will be the impact of this budget on economy and household?

With the kind of schemes announced, we can call this budget as pro-rural and middle class centric. The budget has some direct and some indirect impact on our economy. The changes introduced with respect to income tax and direct income support to farmers will prove to be the game changer as the majority of people will be benefited and more disposable income will be available in the hands.

This will ensure an increase in consumption and in turn will benefit the economy. The government has extended its support to MSME’s and real estate sector and the announcement in this budget for them will ensure their growth in the near future.

All these announcement and proposals will prove successful only if the government is successful in keeping its fiscal deficit target of 3.4% for next year. It will be interesting to see how things will be implemented without compromising the fiscal on large scale.

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