The Finance Minister, Nirmala Sitharaman, presented the final budget for the FY2019-2020 on July 5, 2019. The Interim Budget was present in February this year. The new budget retains the relief offered to the taxpayers and adds a few tax incentives for the taxpayers. At the same time, there will a small section of taxpayers (with very high incomes) that will be disappointed. Here are the highlights from the Budget 2019.
Income Tax Slabs Remain Unchanged
The income tax slabs remain unchanged from those that were announced in the Interim budget in February 2019. However, those with very high income have received a very rough deal.
| Taxable Income | Age < 60 years | Taxable Income | Senior Citizen (60 <= Age < 80 years) | Taxable Income | Very Senior Citizen (Age >= 80 years) |
| Rs 2.5 lacs – Rs 5 lacs | 5% | Rs 3 lacs – Rs 5 lacs | 5% | Rs 5 lacs – 10 lacs | 20% |
| Rs 5 lacs – Rs 10 lacs | 20% | Rs 5 lacs – Rs 10 lacs | 20% | Above Rs 10 lacs | 30% |
| Above Rs 10 lacs | 30% | Above Rs 10 lacs | 30% | ||
| *Rebate of Rs 12,500 for taxable income up to Rs 5 lacs (Earlier: Rebate of Rs 2,500 for taxable income up to Rs 3.5 lacs) | |||||
| Surcharge of 10% on income tax if the taxable income is between Rs 50 lacs and Rs 1 crore | |||||
| Surcharge of 15% on income tax if the taxable income is between Rs 1 crore and Rs 2 crores | |||||
| Surcharge of 25% on income tax if the taxable income is between Rs 2 crores and Rs 5 crores | |||||
| Surcharge of 37% on income tax if the taxable income is above Rs 5 crores | |||||
| Cess at 4% applicable over income tax and surcharge | |||||
Surcharge has been increased for taxpayers with an annual income of Rs 2 crores. You can think of surcharge as the additional tax that you must pay since your taxable income breaches a certain threshold.
- No surcharge for taxable income up to Rs 50 lakhs.
- Surcharge of 10% for taxable income between 50 lakhs and Rs 1 crore.
- Surcharge of 15% for taxable income between 1 crore and Rs 2 crores.
- Surcharge of 25% for taxable income between 2 crores and Rs 5 crore. (This is a new slab)
- Surcharge of 37% for taxable income above Rs 5 crores. (This is a new slab).
For instance, if your income is over 1 crore, you must pay 15% surcharge on the tax calculated as per your tax slab. Your 30% tax rate becomes 34.5% (30% * (1+15%). Of course, cess at 4% will also be charged. You can see, if your taxable income is above Rs 5 crores, your marginal tax rate will be 41.1% (30%* 137%). Cess shall be extra. You can see this is a significant jump in tax liability and is likely to leave such taxpayers unhappy. Do note marginal relief for such surcharge shall still be available.
Additional Relief for Home Buyers
There is an additional tax deduction of Rs 1.5 lacs per financial year (under the new Section 80EEA) on the interest paid on the housing loan subject to the following conditions.
- The home loan is sanctioned between April 1, 2019 and March 31, 2020.
- You must not own any residential house on the date of sanction of loan.
- The Stamp duty value of the house does not exceed Rs 45 lacs.
Do note this new tax benefit shall be available even for the subsequent years provided the other conditions mentioned above are met. For instance, if the loan is sanctioned in FY2020, you will continue to get tax benefit even in the subsequent years. This is clearly to give a push to home buyers, especially those who are sitting on the fence.
Immense Relief for Buyers of Electric Vehicles
There is an additional tax deduction of Rs 1.5 lacs for the interest paid towards a loan taken to purchase an electric vehicle (under Section 80EEB). As I understand, vehicle includes both bikes and cars. By the way, the finance bill has a definition for the electric vehicle. The tax relief is subject to the following conditions:
- The vehicle must be purchased between April 1, 2019 and March 31, 2023.
- The loan must be taken from a financial institution.
The tax relief is not just limited to the year of purchase but shall be available in the subsequent years too. Again, the Government wants to promote electric vehicle. GST on such vehicles has also been reduced from 12% to 5%.
Additional Important Announcements in the Budget
- The Government shall launch a CPSE ETF that will get you tax benefits under Section 80C just like you do for ELSS (Equity linked savings scheme). The Government uses CPSE ETFs for its divestment in PSUs. The modalities are still awaited. You can expect a lock-in for 3 years.
- NPS taxation was revised in December last year. The entire 60% lumpsum withdrawal permitted at the time of retirement was made tax-exempt. Central Government was to contribute 14% of the basic salary to its employees. Investment amount in NPS Tier II account was also added to Section 80C basket. Enabling provisions have now been added to Section 80C, Section 80CCD and Section 10.
- TDS of 2% if the cash withdrawal exceeds Rs 1 crore annually from banks.
- Definition of a PSU has been redefined. Earlier, The Government had to own at least 51% of the entity. Now, the definition is, The Government and the entities owned by the Government must hold at least 51%. Remember, LIC is Government owned.
- Every woman, who holds a JanDhan account and is a Self-Help group member, will be offered an overdraft limit of Rs 5,000. One woman in each self-help group shall be eligible for loan of Rs 1 lakh under the Mudra loan scheme.
- New Pension scheme (Pradhan Mantri Karam Yogi Maandhan) for Small Businessmen and Traders with turnover of less than Rs. 1.5 crores.
- NRIs can now be issued Aadhaar card after their arrival in India (permanent return in my opinion) without the waiting period of 180 days.
- Regulatory authority of Housing Finance Companies to be shifted from National Housing Bank (NHB) to the Reserve Bank of India (RBI).
- New coins of 1, 2, 5, 10 and 20 rupees to be launched.
- PAN and Aadhaar card to be made interchangeable. Those who do not have PAN card can file returns by quoting their Aadhaar card.
- Pre-filled tax returns to be made available for investors. The information from various sources (banks, stock exchanges, mutual funds) shall be auto populated.
- Tax-filing mandatory for those who have deposited more than Rs 1 crore in savings/current account OR have spent more than Rs 2 lacs on foreign travel OR have paid electricity bill of over Rs 1 lac in a year.