Tax benefits for the salaried class in Budget 2019

There had been much discussion on what the Finance Minister will provide to woo the common man. However, as seen from the Interim Budget 2019 presented on 01 February, the government refrained from making big announcements as it is only 3 months before the new government presents a full-fledged Budget in July 2019. The Interim Budget, therefore, has given interim relief to the middle class taxpayers. Key relief measures are summarised below:

Tax Rates

There are no changes proposed in the tax slabs / rates. However, it is proposed to provide an enhanced rebate up to Rs 12,500 to an individual with taxable income up to Rs 500,000. Currently, the rebate is available up to Rs 2,500 to an individual with taxable income up to Rs 350,000. Tax payers with taxable income above Rs 500,000 would have nil benefit.

Increase in the standard deduction limit

Standard deduction was re-introduced in the last budget for salaried employees. It is proposed to increase the limit from Rs 40,000 to Rs 50,000. All salaried employees would benefit from this and the tax benefit would range from Rs 2080 to Rs 3588 (including surcharge and cess).

House property

Till now, under current tax provisions, if a person owned more than one house property for self-occupation, then only one house property was considered as self-occupied and the other property was subject to tax based on a notional rent even if the property was not actually let out.

It is now proposed to extend the “self-occupied property tag” to two residential houses as against one earlier. Accordingly, the second self-occupied house property would also not be subject to tax on notional basis.

This would benefit all taxpayers who didn’t have a housing loan. Thus, they were not claiming any interest deduction, and had to pay tax on the notional rent. However, taxpayers with housing loans and claiming interest deduction would be adversely impacted. The interest deduction in aggregate for 2 self-occupied house properties would be restricted to Rs 200,000. Thus, one could be losing on the carry forward / set off benefits as loss from the 2nd house property could be set off or carried forward for 8 years to be set off against income under the head house property.

Currently, where the property is held as a stock-in-trade and not let out within a year from the end of the financial year in which the completion certificate is obtained from the competent authority, the annual value is considered as nil and thus not subject to tax. It is proposed to increase the vacancy period / exemption period from 1 year to 2 years.

TDS on interest and rental income

The current threshold for applying TDS on interest income (other than interest on securities) is proposed to be increased from Rs 10,000 to Rs 40,000. This will be a big relief for small income group, non-working spouses or pensioners who had to file a tax return only to claim a tax refund.

Further, the current threshold for applying TDS on rent is proposed to be increased from Rs 180,000 to Rs 2,40,000.

Capital Gains

Currently, for individuals, long term capital gains arising from the sale of a residential property is exempt from capital gains tax, if the whole of capital gains is invested in another residential house property in India.

It is now proposed to extend the roll over benefits even where the investment is made in 2 residential houses in India provided the amount of capital gains does not exceed Rs 2 crore. It is important to note that this benefit is available once in the lifetime of the individual. This would provide a great relief to an individual who is required to sell one property and invest in more than property for personal reasons.

As there are no significant tax benefits for the common man, especially for those in the higher income threshold, it needs to be seen how the goal of overall reduction in tax rates would be achieved through subsequent Budgets.

Given the constraints of an interim Budget, the relief even though meagre is welcome.