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Budget 2019 and your life: Full impact of income tax and other provisions for common man, explained

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By Aditya Modani

Amit along with his supervisor, Raj was watching the Union Budget presented by the Finance Minister, Nirmala Sitharaman. Prior to the Budget, Amit expected that the tax relief provided in the interim budget through rebate would be converted into a change in income tax slab, thereby having some additional disposable income to invest in a residential house and to buy a car. Raj also mentioned to Amit that there are strong rumours of re-introduction of estate duty/ inheritance tax and it will be worth to see how the FM looks at this.

As the FM presented her budget, Amit was delighted to hear that there will be an additional deduction of Rs 150,000 towards interest on loan availed for investing in a residential house under section 80EEA. While Amit needs to ensure that he avails the loan prior to 31 March 2020 and also invests in a house which has a stamp value less than Rs 45 lakhs to avail the above deduction. The aforesaid deduction is over and above the deduction (Rs 200,000) available to him under section 24.

BUDGET 2019 | COMPLETE COVERAGE

Also, Amit needs to consider the definition ‘consideration for immovable property’ introduced under section 194IA, wherein if the consideration payable for acquisition of an immovable property exceeds Rs 50 lakhs, tax needs to be deducted at source (TDS) at a rate of 1%. The sale consideration now includes payments made for amenity like club membership, car parking fees, electricity & water facility fee, maintenance fee, advance fee, etc.

Like all citizens, Amit wants to lead a good quality life with ease of living, maintaining a cleaner and greener environment. Amit was thinking of buying an electric car and this thought got a big boost when the FM proposed that taxpayers purchasing electric vehicles and incurring interest expense towards loan taken for purchase of such vehicle, shall be eligible for a deduction of Rs 150,000 from their taxable income under section 80EEB. Amit must be careful that the above deduction is not automatic and he needs to satisfy conditions viz., availing the loan prior to 31 March 2023 and, he should not own any other electric vehicle as on the date of sanction of loan.

WATCH | Budget 2019: Top income tax benefits for common man

Raj, being a serial entrepreneur and an investor in several starts-up was excited to hear that the FM has proposed to extend the capital gains exemption earned on sale of residential property, if the net consideration is invested in equity shares of start-ups to 31 March 2021. Further, the minimum shareholding percentage was reduced from 51% to 25% among other conditions. Raj mentioned to Amit that he is contributing to the National Pension System and the proposed amendment to not tax 60% of the corpus on closure or opting out of the scheme is a good move.

This will attract more investors to the scheme. Amit and Raj being in technology sector, knew about the immense benefits that digital transformation can bring in to tax administration, increase efficiency, transparency and reduce corruption. They were happy with the announcements made in the interim budget on the digital front and expected that the FM will continue them. They were not disappointed!

The FM proposed interchangeable use of Permanent Account Number (PAN) vis-à-vis Aadhaar. Now, taxpayers not having PAN can quote their Aadhaar in the tax returns forms and other places where quoting of PAN is mandatory. If the PAN is not linked with Aadhaar, the PAN will become inoperative and not invalid as per the earlier provisions.

Raj and Amit were discussing how difficult it is to collate information required for filing tax returns due to multiple sources of income. The FM’s initiative of providing pre-filled tax returns containing details of salary income, capital gains from securities, bank interest, dividends, tax paid/ deducted details, etc, will tremendously help in saving time taken to collate information and file tax return.

The proposal of the FM to make return filing mandatory for taxpayers who perform high value transaction will help the tax authorities in obtaining data to track taxpayers and ensure compliances. Presently, the high value transactions include deposit exceeding Rs 1 Crore in current account(s), expenses over Rs 200,000 on travel to foreign country for self or others, electricity expense of over Rs 100,000 in a year or others as may be prescribed. Further, the FM has stated that no taxpayer will be prosecuted for failure to file tax returns, if the tax payable is less than Rs 10,000 (from current Rs 3,000) and after giving effect to TDS, advance tax and self-assessment tax paid.

They were happy that the assessment will no longer need face to face interaction with tax officials. With digital intervention, faceless e-assessments are being launched and notices will be issued by a centralized assessment unit in a phased manner. This will bring in standardisation, efficiency, curbing of unwanted practices and reduce litigation.

Raj pointed to Amit that the Government is promoting digital payments and have proposed to waive of charges or merchant discount rate on specified transactions. Also, he pointed that there will be a TDS at a rate of 2% on cash withdrawals exceeding Rs 1 Crore in a year. Amit was proposing to liquidate one of his investments in life insurance policy and was happy to know that the TDS would be affected at a rate of 5% net basis (ie., payout less premium paid), instead of gross amount on the non-exempt portion under section 10(10D).

While Raj was happy that the rumours on estate duty and inheritance tax were not true. But the increase in surcharge left a dent in his happiness as now the effective rate of tax would be 39% and 42.744% for income exceeding Rs 2 Crores but below Rs 5 Crores and above Rs 5 Crores respectively.

Though the effective rate of tax was increased due to increase in surcharge rate, Amit and Raj were happy that the FM recognized the honest taxpayers and are looking forward in doing their duty towards the country’s development.

(The author is Director, People Advisory Services, EY with inputs from Chintan Mehta, Manager, People Advisory Services, EY. Views expressed are personal)