Who doesn’t like a sweet surprise! Budget day started with much hype and contradicting opinions – would the interim Finance Minister (FM) stick to the conventional line or would he break convention?
As the FM presented the Interim Budget, given the manner in which the speech was read out, everyone started reconciling to the thought that there would be no change in direct tax provisions. And then suddenly, there was a ‘pop’ - much like a chocolaty explosion in the middle of hard toffee.
He saved the best for the last, ending with a slew of beneficial tax provisions for the common man. However, has he delivered on the expectations of individual taxpayers, especially the middle-class? Let us have a closer look at the personal tax proposals.
There is no change to the income tax rates and slabs. Instead, a tax rebate of Rs 12,500 has been proposed for resident individuals with taxable income not exceeding Rs 5 lakh. Effectively, no tax will be payable by such individuals.
The rebate will, in fact, provide relief to individuals with higher gross income, as rebate is calculated on the final tax payable after applying deductions available under various sections such as 80C (up to Rs 150,000 for investments such as insurance premium, PF contributions, school fees, principal repayment of home loan and PPF), section 80D for medical insurance premium, section 80E for interest on education loan and section 80TTA for interest on savings bank account, among others.
Standard deduction for salaried individuals has been increased by Rs 10,000 to Rs 50,000. Standard deduction up to Rs 40,000 was reintroduced in the last Budget.
Simultaneously, the deductions available for conveyance allowance and medical expenditure were withdrawn, giving a net benefit of only Rs 5,800.
With the proposed increase in the standard deduction of Rs 10,000, the salaried class will get much-needed relief.
Under the current provisions, a notional rental income is applied on more than one self-occupied house property. If a person owns more than one house property which are not let out, only one house can be considered as self-occupied and hence not be subject to tax.
Any additional house or property, if not rented out, is subject to tax on the basis of notional rental value. It is now proposed that this exemption benefit will be available to two such houses. This is a welcome provision, especially for individuals who have houses in different cities on account of their employment.
However, it is to be noted that the corresponding interest on home loans for both such houses will remain restricted to Rs 2 lakh in aggregate.
Furthermore, notional rent will still apply to more than two such houses.
Currently, an individual or Hindu undivided family (HUF) can avail exemption of long term capital gains arising from the sale of the residential house if the capital gains are re-invested in another residential house in India within the prescribed time period. This exemption has now been extended to reinvestment in two such residential houses.
However, this benefit is available only if the capital gains from the sale of the original residential house does not exceed Rs 2 crore.
Moreover, this exemption can be availed only once in the lifetime of the assessee.
The FM has also given relief through proposed amendments in TDS provisions. The threshold for deduction of tax on interest from bank/post office deposits has been increased from Rs 10,000 to Rs 40,000.
TDS provisions on rental income have also been liberalised by increasing the threshold from Rs 180,000 to Rs 240,000.
Both these provisions will provide relief to persons with limited income, as they will not face the hardship of having cash locked up in TDS refunds.
The tone of the Interim Budget was clearly to appease a cross-section of taxpayers. Apart from the specific provisions, the FM also emphasised on greater use of technology in tax administration to make compliance easier, viz. processing tax returns and refunds within 24 hours of filing, handling scrutiny assessments through electronic mode and reducing personal interaction with tax authorities.
He also thanked honest taxpayers for their contribution to nation building, referring to an increase in the number of tax filers and increase in direct tax collections.
Clearly, this government has chosen to move away from the convention of presenting only a vote on account in an election year. The common man will certainly hope that these proposed amendments are here to stay.