The Interim Finance Minister Piyush Goyal presented the Interim Budget 2019 on February 1st 2019. This was a Budget for the farmers, workers, pensioners and the middle class salaried. This was a Budget with something for everyone. This was a Budget with only give and no take.
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The Finance Minister raised standard deduction for salaried taxpayers from Rs 40,000 to Rs 50,000 a year. The benefit of standard deduction on salary was introduced in Union Budget 2018. The standard deduction of Rs 40,000 replaced medical reimbursement of Rs 19,200 and transport allowance of Rs 15,000. The hike in standard deduction results in a maximum tax saving of over Rs 3,000 in higher tax brackets.
The hike in standard deduction will bring more tax savings and money to the salaried class. This money will boost consumption in the economy.
The Finance Minister has given a gift to the middle class. Under the new rule, individual taxpayers with annual income up to Rs 5 Lakhs get a full tax rebate. The Finance Minister hiked the income tax rebate under Section 87A from Rs 2,500 to Rs 12,500. Those with net taxable income up to Rs 5 lakhs a year, pay no tax. Those with net taxable salary above Rs 5 Lakhs will not get the benefit of the rebate.
Let’s say your salary is Rs 7 Lakhs. You can use the Section 80C deduction up to Rs 1.5 Lakhs a year and reduce taxable salary to Rs 5.5 Lakhs. Make use of the standard deduction of Rs 50,000 a year and reduce taxable salary to just Rs 5 Lakhs.
The taxable salary is Rs 5 Lakhs. You have to pay tax @5% which is Rs 5 Lakhs @ 5%. Income tax payable is Rs 12,500. You have tax rebate under Section 87A of Rs 12,500. The total tax payable is Rs 12,500 – Rs 12,500 (Section 87A). This is Zero Tax on a salary/income of Rs 7 Lakhs.
The Finance Minister has given you an opportunity to buy a second house. This is good news for job hoppers who work in different cities. After the Budget, you don’t need to pay tax on the second house.
Your second house was always treated as rented, even if you didn’t rent it out. It was deemed to be earning an income from you. If the second house was occupied by parents/siblings, tax on notional rent would be paid even though no income was earned from the house. The notional rent has now been waived off.
Long Term Capital Gains LTCG, from the sale of your house can now be invested in two houses. Earlier, you could sell the house and save tax on LTCG by investing capital gains in a single new house property. After Budget 2019, you can save tax by investing in two residential house properties.
This can be done only once in a lifetime and only for capital gains on sale of house property up to Rs 2 Crores.
See Also: Union Budget 2019-2020: Major Takeaways
The Finance Minister has hiked TDS limit on interest from deposits with banks and post offices to Rs 40,000 a year. It remains Rs 50,000 a year for senior citizens. This benefits small depositors and non-working spouse.
What does this mean? Your bank and post office will not deduct tax (TDS) if interest income from deposits is up to Rs 40,000 a year. (This was earlier Rs 10,000) There’s no hike in tax exemption limit from Rs 10,000 to Rs 40,000 a year on interest income from deposits from banks and post offices. You pay tax on aggregate income after adding interest income of more than Rs 10,000 to basic income. This is a convenience and not a tax benefit.
This rule would benefit landlords who rent out houses. Budget 2019 has increased TDS on rent paid from Rs 1.8 Lakhs a year to Rs 2.4 Lakhs a year. This is a tax-related convenience to those who depend on rental income.
Let’s say the receiver (landlord) earned income below the taxable income or he invested in tax saving investments (Section 80C) and used other Chapter V1A deductions to nullify tax liability. He would still have to claim a refund of TDS. By hiking the limit from Rs 1.8 Lakhs to Rs 2.4 Lakhs, TDS would be deducted only when rent crossed the limit.
After the Budget you will not see the taxman and tax refunds will be processed in 24 hours. All returns are processed in 24 hours and refunds issued simultaneously.
The assessment of all tax returns (ITR) would be done electronically with no personal interface. This is done by anonymous back offices manned by tax experts.
The Finance Ministry on December 10th 2018 made a proposal to increase tax exemption limit for lump sum withdrawal from NPS to 60% of the total amount. When you withdraw from NPS at maturity, you can withdraw a maximum of 60% of the accumulated corpus with the remaining 40% used to compulsorily avail an annuity plan. With this proposal the entire lump sum withdrawal from NPS, which is limited to 60% of the accumulated corpus would be tax-free.
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