Union Budget 2019 – Insights & Updates



⦁ INTERIM BUDGET 2019 –IMPLICATIONS ON PERSONAL TAXES

In a path breaking move, the Interim Budget 2019 has made certain welcome significant changes in the tax structure for individuals.

  • Increase in Tax Rebate to Rs.12,500 for Taxable Income up to Rs. 5 lacs

    While there is no increase in the basic exemption limit from Rs.2.50 lacs to Rs. 5 lacs but rebate under Section 87A has been increased from Rs.2,500 to Rs.12,500 and would cover taxpayers having taxable income up to Rs. 500,000. This would mean that the individual resident taxpayers having taxable income up to Rs. 5 lacs will not be liable to pay any income-tax as the tax rate for the slab Rs.2.50 lacs to Rs.5 lacs is 5%. However, the obligation to furnish tax return would still continue for such taxpayers and as a result, the number of tax filers may not reduce. This was overdue keeping in view the fact that the basic exemption limit and rebate has not been increased for the past 4 years despite annual inflation of about 3% to 7%. This benefit is not available to HUFs and non-residents which would continue to have basic exemption limit of Rs. 2.50 lacs.

  • Increase in Standard Deduction limit for salaried taxpayers

    The standard deduction limit has been increased from Rs. 40,000 to Rs. 50,000. In the last Budget, standard deduction of Rs.40,000 was introduced but was coupled with withdrawal of exemption for conveyance allowance of Rs.19,200 and medical re-imbursement of Rs.15,000 resulting in a very nominal benefit.

  • Taxpayers with income up to Rs.9.75 lacs can have Zero Tax with Existing Tax Deductions, Increase in Tax Rebate and Standard Deduction

    The rebate on the total income is after considering the eligible deductions under section 80C, 80D, 80CCD, etc., interest on housing loan deduction and standard deduction which are listed below:

    • Standard deduction for salaried taxpayers (Rs. 50,000)
    • Interest on Housing loan for self-occupied property (Rs.200,000)
    • Deduction under Section 80C for specified investments (Rs. 150,000)
    • Deduction under Section 80CCD(1B) – Additional investment in NPS (Rs.50,000)
    • Deduction under Section 80D – Mediclaim (Rs.25,000)

    This would mean that individual taxpayers even having income up to Rs.9.25 lacs (Rs.9.75 lacs for salaried employees) can have zero tax.

  • No tax on notional rent of second self-occupied house

    Currently, income tax on notional rent is payable based on fair rent if the individual has more than one self-occupied house. It is proposed to exempt levy of income tax on notional rent on a second self-occupied house. This is line with the real income principle that notional income should not be subject to tax and also avoid litigation and ambiguity regarding computation of annual value.

  • Capital Gains tax Exemption under Section 54 has increased from investment in one residential house to two residential houses

    At present, the benefit of capital gains tax exemption under section 54 is available if the tax payer invests the long term capital gain arising from sale of a residential house property for purchase or construction of “one” residential property within the specified period. The restriction of investment in “one” residential house is proposed to be increased to “two” residential houses for a tax payer having capital gains up to Rs. 2 crore. This benefit can be availed only once in a life time of the tax payer. This move would also incentivize real estate sector at large and benefit the middle class taxpayers largely.

  • Increase in Ceiling Limit of TDS on Interest and Rent

    TDS threshold on interest earned on bank/post office deposits is being proposed to be raised from Rs. 10,000 to Rs. 40,000. This will benefit small depositors and non-working spouses. Further, the TDS threshold for deduction of tax on rent is being proposed to be increased from Rs. 1,80,000 to Rs. 2,40,000 for providing relief to small taxpayers. This would remove the hassle of small taxpayers to file the return and for claiming the refund.


⦁ BUDGET 2019 ARTICLE 2A – INDIVIDUAL TAXPAYERS HAVING INCOME UPTO RS. 9.25 LACS CAN   ESCAPE TAX NET

While the Interim Budget 2019 has not increased the basic exemption limit from Rs.2.50 lacs, it has increased tax rebate under Section 87A from Rs.2,500 to Rs.12,500 and would cover taxpayers having taxable income up to Rs. 500,000. The rebate on the total income, is after considering the eligible deductions under section 80C, 80D, 80CCD, etc, interest on housing loan deduction and other income. This would mean that individual taxpayers even having income up to Rs.9.25 lacs (Rs.9.75 lacs for salaries employees) can escape tax net. This is exemplified below:

Deductions Available Rs.
Interest on Housing loan for self-occupied property – sec 24 200,000
Deduction under Section 80C (Insurance premium / 5 year bank deposits / Principal on housing loan / ELSS / NPS / sukanya Samruddhi Yojana, etc) 150,000
Deduction under Section 80CCD(1B) – Additional investment in NPS 50,000
Deduction under Section 80D – Mediclaim 25,000
Total Deductions 425,000

The tax rate for individuals having taxable income exceeding Rs.2.50 lacs and up to Rs. 5 lacs is 5% resulting in a tax of up to Rs.12,500. Due to increase in tax rebate, individual resident taxpayers having taxable income up to Rs.5 lacs can claim the entire tax as tax rebate. The above deductions of Rs.4.25 lacs coupled with tax rebate means that individual resident taxpayers having income up to Rs.9.25 lacs can escape the tax net. Further, in case of salaried employees, a standard deduction of Rs.50,000 would also be available (earlier limit Rs.40,000).


⦁ PERSONAL TAX – MAJOR INCREASE IN TAX REBATE TO BENEFIT 3 CRORE TAXPAYERS

The Interim Budget 2019 is a bold and path breaking budget and unlike the earlier interim budgets, has made a major change in the tax structure for individuals. It may be pointed out that there is no increase in the basic exemption limit from Rs.2.50 lacs to Rs. 5 lacs but rebate under Section 87A has been increased from Rs.2,500 to Rs.12,500 and would cover taxpayers having taxable income up to Rs. 500,000. This would mean that the individual resident taxpayers having taxable income up to Rs. 5 lacs will not be liable to pay any income-tax as the tax rate for the slab Rs.2.50 lacs to Rs.5 lacs is 5%. However, the obligation to furnish tax return would still continue for such taxpayers. It may also be pointed out that this benefit is not available to HUFs and non-residents which would continue to have basic exemption limit of Rs. 2.50 lacs.

This is a massive relaxation and will benefit almost 3 crore taxpayers and at the same time not erode the tax base of about 7 crore taxpayers.


⦁ BELEAGUERED REAL ESTATE SECTOR IN FOR SOME MUCH NEEDED TAX RELIEF

One of the major beneficiaries of the Interim Budget 2019 is the real estate sector as a host of tax relief measures have been proposed, which would provide certain much needed tax relief to the sector. The real estate sector has been facing challenges due to implementation of the Real Estate (Regulation and Development) Act, 2016 (‘RERA’), reduced demand, empowerment of purchasers of under construction properties resulting in litigative actions, reduced credit flow from banks/NBFCsand huge inventory of unsold properties.

Some of the Significant Proposals in Finance Budget 2019 impacting real estate sector are:

  1. Relaxation of the Deeming Provision for taxation of notional rent in respect of unsold inventory shall not be charged to tax up to two years (section 23)

    The Finance Act 2017 had introduced notional taxation in case of builders, where unsold inventory in the form of stock-in-trade is held for a period of more than 1 year from the end of financial year in which the certificate of completion of construction of property is obtained. Considering the slackening demand and the unsold inventory, this concept of taxation of notional income was stretching the working capital requirements of the real estate sector players. This budget proposal to increase the said relaxation period of 1 year to 2 years, from the year in which the completion certificate is obtained, would provide much needed relief to the sector.

  2. In case of Affordable Housing projects, extension of the time limit from 31st March, 2019 to 31st March, 2020 for obtaining approval of the housing project for availing deduction (section 80IBA)

    Another major announcement, was targeted at the affordable housing segment of real estate developers. The period to approve project by the competent authority has been extended from 31.03.2019 to 31.03.2020. As such, the profits earned from the business of developing affordable housing, where the project approved within the extended period and subject to other conditions specified in the section 80IBA will be exempt from tax. However, such profits are still subject to MAT (Minimum Alternate Tax) or AMT (Alternate Minimum Tax) @ 18.5% which greatly negates the benefit of this tax deduction.

  3. Certain measures which would provide impetus to housing stock demand from retail investors:
    1. No tax on notional rent of second self-occupied house (section 23)

      Currently, income tax on notional rent is payable based on fair rent if the individual has more than one self-occupied house. It is proposed to exempt levy of income tax on notional rent on a second self-occupied house. This is line with the real income principle that notional income should not be subject to tax and also avoid litigation and ambiguity regarding computation of annual value.

    2. Capital Gains tax Exemption under Section 54 has been increased from investment in one residential house to two residential houses

      At present, the benefit of capital gains tax exemption under section 54 is available if the tax payer invests the long term capital gain arising from sale of a residential house property for purchase or construction of “one” residential property within the specified period. The restriction of investment in “one” residential house is proposed to be increased to “two” residential houses for a tax payer having capital gains up to Rs. 2 crore. This benefit can be availed only once in a life time of the tax payer. This move would also incentivize real estate sector at large and benefit the middle class taxpayers largely.

  4. GST Council to appoint a Group of Ministers to examine the tax issues for home buyers

    Another major announcement was that the Government wants the GST burden on home buyers to be reduced and accordingly it had moved the GST Council toappoint a Group of Ministers to examine and make recommendations in this regard. At present, GST is charged on under construction projects (generally effective rate of 12%) whereas no GST is applicable on sale of property post completion. Further, stamp duty is levied on the same by most state governments which has not been subsumed in the GST.


⦁ GST COMPOSITION SCHEME FOR SERVICE PROVIDERS AND INCREASE IN EXEMPTION LIMITS

The MSME sector has a lot to cheer from the recent changes in the Goods and Services Tax regime based on the 32nd GST Council meeting dated 10 January 2019 and reiterated in the Interim Budget 2019. The service sector accounts for over 55% of the GDP which was not covered by composition scheme earlier. It is also proposed to increase the basic exemption limits for registration as well as the maximum turnover limit for composition scheme. MSME sector covers 90% of the businesses by volume and is a pivotal sector for India. These proposed reforms will greatly improve the ease of doing business as most of the small and medium sized businesses are not fully equipped to meet with the complex GST regulations, filing of tax returns, claiming input tax credits, etc. The 3 mega changes proposed in this respect are as follows:

  • Increase in basic exemption limit for GST

    It is proposed to increase the threshold limit for exemption from registration and payment of GST to Rs 40 lakhs and Rs 20 lakhs (for Special Category States). Currently, all businesses with a turnover of up to Rs 20 lakh are exempt from GST registration, while the limit for Special Category states is Rs 10 lakhs.

  • Increase in limits for eligibility of composition schemes for manufacturers and traders

    The GST Composition Scheme, under which intra state suppliers of goods pay tax at a flat rate on the turnover (generally 1%), can now be availed by businesses with a turnover of up to Rs 1.5 crore as against the earlier limit of Rs 1 crore. It is proposed to increase this turnover limit with effect from February 1st 2019 (as per recommendations of the GST Council). Suitable notification is, however, awaited in the said regard.

  • GST Composition Scheme for Small service providers

    A composition scheme shall be introduced for supplier of services having a turnover of up to Rs. 50 lakhs. The service providers opting for Composition Scheme can pay tax at a tax rate of 6 % ( CGST 3 % + SGST 3 % ) on their turnover and would not be eligible to avail any input tax. The said scheme shall be applicable across all service providers. The service providers covered under the Composition Scheme shall be required to file 1 annual return and make quarterly payment of GST. Suitable notification is however awaited in the said regard.


⦁ IMPLICATION OF BUDGET 2019 PROPOSALS ON GEMS & JEWELLERY SECTOR

The Interim Budget 2019 has been a bold and path breaking budget as it has introduced certain welcome changes. The personal level tax reliefs shall provide major relief to the Gems & Jewellery Sector’s large employee base of appx. 4.64 million. The key changes in the tax structure for individuals are as under:

  • Increase in Tax Rebate to Rs.12,500 for Taxable Income up to Rs. 5 lacs

    While there is no increase in the basic exemption limit from Rs.2.50 lacs to Rs. 5 lacs but rebate under Section 87A has been increased from Rs.2,500 to Rs.12,500 and would cover taxpayers having taxable income up to Rs. 500,000. This would mean that the individual resident taxpayers having taxable income up to Rs. 5 lacs will not be liable to pay any income-tax as the tax rate for the slab Rs.2.50 lacs to Rs.5 lacs is 5%. However, the obligation to furnish tax return would still continue for such taxpayers and as a result, the number of tax filers may not reduce. This was overdue keeping in view the fact that the basic exemption limit and rebate has not been increased for the past 4 years despite annual inflation of about 3% to 7%.

  • Employer can provide Rebate u/s 87A, while computing the Tax Liability of the Employee

    As per the CBDT circular no. 1 of 2019 issued on 1 January 2019, the employer may consider to provide relief under section 87A of the Income Tax Act while deducting tax at source.

  • Increase in Standard Deduction limit for salaried taxpayers

    The standard deduction limit has been increased from Rs. 40,000 to Rs. 50,000. In the last Budget, standard deduction of Rs.40,000 was introduced but was coupled with withdrawal of exemption for conveyance allowance of Rs.19,200 and medical re-imbursement of Rs.15,000 resulting in a very nominal benefit.

  • Taxpayers with income up to Rs.9.75 lacs can have Zero Tax with Existing Tax Deductions, Increase in Tax Rebate and Standard Deduction

    The rebate on the total income is after considering the eligible deductions under section 80C, 80D, 80CCD, etc., interest on housing loan deduction and standard deduction which are listed below:

    • Standard deduction for salaried taxpayers (Rs. 50,000)
    • Interest on Housing loan for self-occupied property (Rs.200,000)
    • Deduction under Section 80C for specified investments (Rs. 150,000)
    • Deduction under Section 80CCD(1B) – Additional investment in NPS (Rs.50,000)
    • Deduction under Section 80D – Mediclaim (Rs.25,000)

    This would mean that individual taxpayers even having income up to Rs.9.25 lacs (Rs.9.75 lacs for salaried employees) can have zero tax.

  • Mega pension scheme namely 'Pradhan Mantri Shram-Yogi Maandhan' for the unorganized sector workers with monthly income up to Rs.15,000

    A mega pension scheme namely 'Pradhan Mantri Shram-Yogi Maandhan' for the unorganized sector workers with monthly income up to Rs.15,000 has been launched. This pension yojana shall provide them an assured monthly pension of Rs. 3,000 from the age of 60 years on a monthly contribution of a small affordable amount during their working age. The Government will deposit equal matching share in the pension account of the worker every month. It is expected that at least 10 crore labourers and workers in the unorganized sector will avail the benefit of 'Pradhan Mantri Shram-Yogi Maandhan' within next five years making it one of the largest pension schemes of the world At present, the benefit of capital. As the Gems and Jewellery industry has a large workforce in unorganized sector, this can provide much needed social security.

  • No tax on notional rent of second self-occupied house

    Currently, income tax on notional rent is payable based on fair rent if the individual has more than one self-occupied house. It is proposed to exempt levy of income tax on notional rent on a second self-occupied house. This is line with the real income principle that notional income should not be subject to tax and also avoid litigation and ambiguity regarding computation of annual value.

  • Capital Gains tax Exemption under Section 54 has increased from investment in one residential house to two residential houses

    At present, the benefit of capital gains tax exemption under section 54 is available if the tax payer invests the long term capital gain arising from sale of a residential house property for purchase or construction of “one” residential property within the specified period. The restriction of investment in “one” residential house is proposed to be increased to “two” residential houses for a tax payer having capital gains up to Rs. 2 crore. This benefit can be availed only once in a life time of the tax payer. This move would also incentivize real estate sector at large and benefit the middle class taxpayers largely.

  • Increase in Ceiling Limit of TDS on Interest and Rent

    TDS threshold on interest earned on bank/post office deposits is being proposed to be raised from Rs. 10,000 to Rs. 40,000. This will benefit small depositors and non-working spouses. Further, the TDS threshold for deduction of tax on rent is being proposed to be increased from Rs. 1,80,000 to Rs. 2,40,000 for providing relief to small taxpayers. This would remove the hassle of small taxpayers to file the return and for claiming the refund.