Decoding the Tax Provisions for Individual taxpayers! of Maiden Budget by First Lady Finance Minister

Revenue budget of each year directs the path of functioning of the government. Modi 2.0 has given the budget with its emphasis on technology, increasing farmer’s income, development of youth and many visionary infrastructure advancements, however achieving such changes is impossible unless government has its adequate revenue collections. 

Sources of revenue may be multiple to the government but the most contributing is the tax. Key Highlights of the changes from income tax standpoint for indiviudals are as follows:

1. Change in Tax Slab Rates for Individuals/HUF: No change has been introduced in slab rates since, a benefit of Rs. 10,000 by way of increase in standard deduction was already even through initial Budget in February and increase in rebate by Rs. 10,000 where total income was less than Rs. 5 lakhs. However, rich and super rich individuals now need to pay more of tax due to steep increase in surcharge from FY 2019-20, making India one of the highest tax levying nations on individuals:

Rates of tax applicable are follows:

Income Slab	Surcharge	Effective rate of tax
Upto Rs. 50 lakhs	0%	31.2%
Rs. 50 lakhs to Rs. 1 cr.	10%	34.32%
Rs. 1 cr to Rs. 2 cr.	15%	35.88%
Rs. 2 cr to Rs. 5 cr.	25%	39%
Above Rs. 5 cr.	37%	42.744%

Our comments: With the purpose of benefitting the poor and bring parity among rich and poor, government is aiming to tax the super rich and incentivise poor through more and more schemes including farmers. However, such a steady increase in tax rates for rich individual who are already subject to additional dividend tax over and above Dividend Distribution tax on companies may result in super rich shifting their tax residencies to low tax jurisdictions.Note that benefit of marginal relief will be available where surcharge increases marginal increase in income.

2. New Section 194M: 

There is additional requirement on an individual and HUF (who were earlier not require to deduct) to deduct and deposit TDS @5% with tax authorities on account of contractual work or professional fees if amount paid during the year exceeds Rs. 50 lakhs. In order to reduce burden, such person is not required to obtain TAN like in case of immovable property. This amendment will take effect from 1st September, 2019.

3. Clarification for Section 194IA: 

Where on purchase of immovable property for a consideration more than Rs. 50 lakhs other than agriculture property, other charges like club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee etc or other incidental charges are also liable to TDS.

4. Taxing non-residents on gifts received from India:

Currently, gifts received by a non-resident from residents are not taxable on the grounds that the income does not accrue or arise in India. Accordingly, a change is introduced pursuant t which gifts received by a non-resident from a resident in the form of money of property situated in India would be deemed to be taxed subject to benefits available under law and tax treaties

Our comments: This change is brought to prevent tax free movement of Indian properties and cash from India to overseas. Government does not want to loose any revenue from benefits received by non-residents, hence this clause has been introduced.

5. Necessarily furnishing of return of income: 

To ensure that high income generating individuals are filing their return of income, government has come up with the proposal that taxpayers satisfying following criteria are mandatory required to furnish their return of income:

1. has deposited amount exceeding Rs. 1 cr in one or more current account maintained with a banking company or a co-operative bank; or
2. has incurred expenditure exceeding Rs. 2 lakhs for foreign travel; or
3. has incurred expenditure exceeding Rs. 1 lakh towards consumption of electricity;
4. who is claiming capital exemptions by rollover benefits like investment in a house or a bond or other assets, under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB of the Act if his total income is more than the maximum amount not chargeable to tax.

6. Necessary linking of PAN with AADHAAR Card: It has been proposed if a taxpayer fails to link PAN with AADHAAR card within the timelines mentioned, his/her PAN card will be made inoperative as per the conditions to be prescribed.

7. TDS on cash withdrawal to discourage cash transactions (section 194N):

It is proposed to levy TDS @ 2% on cash payments in excess of Rs. 1 cr by a banking company or cooperative bank or post office to a taxpayer from his/her account. However, Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, handling of substantial amounts of cash as a part of their business operation would not b covered. This amendment will take effect from 1st September, 2019.

Our Comments: In order to discourage cash transactions and move towards less cash economy, it is proposed to levy TDS on cash withdrawal by taxpayers. It will prevent circulation of black money and ensure use of proper banking channels.

8. Exemption of interest from borrowings by subscription to Rupee Denominated Bonds to non-resident:

Income arising in the form of interest to a non-resident by an Indian in respect of rupee denominated bonds issued outside India during the period from the 17th September, 2018 and 31st March, 2019 is exempt from tax. This amendment will take effect from 1st April, 2019.

Our Comments: In order to increase the inflow of foreign sourced funds at low cost it has been a great initiative to not tax such income of non-residents.

9. Tax incentive for affordable housing (section 80EEA):

A new deduction has been added in respect of interest on housing loan up to Rs. 150,000 from any financial institution if following conditions are fulfilled:

(i) Loan has been sanctioned between 1st April, 2019 to 31st March 2020.

(ii) Stamp value of house property is upto Rs. 45 lakhs

(iii) Taxpayer does not own any residential house property on the date of sanction of loan.

However, in case a deduction under this section is allowed for any interest, no deduction shall be allowed for such interest again. This is effective from 1 April 2019.

Our Comments: In order to provide impetus to the ‘Housing for all’ objective of the Government and to enable the home buyer to have low-cost funds at his disposal, it is proposed to provide this incentive.

10. Incentives to National Pension System (NPS) subscribers

Any payment from the NPS Trust to an assessee on closure of his account or opting out from pension scheme, is exempt from tax upto 40% of the total amount received. This benefit has been increased to 60% of the amount. 

Our Comments: In order to enable the pensioner to have more disposable funds, this limit has been increased. Also, it would result in increased purchasing power.

11. Increase in contribution of government in Pension Scheme for government employees:

In order to ensure that the Central Government employees get full deduction of the enhanced contribution made by government, limit of deduction has been raised form 10% to 14%.Also, to enable the Central Government employees have more options of tax saving investments under National Pension System, any amount paid as a contribution to his Tier-II account of the pension scheme shall be eligible for deduction as a part of total limit of Rs.150,00 under section 80C from 1st April 2019.

12. Inter-changeability of PAN and Aadhaar and mandatory quoting in prescribed transactions

In order to ensure ease of doing bsuiness and reduce compliance burden, It is proposed that every person who intends to enter into certain prescribed transactions and has not been allotted a PAN, may disclose his AADHAAR number and will be allotted a PAN in the prescribed manner. It is further proposed that every person entering into a prescribed transaction and quoting his PAN or Aadhaar number in the documents pertaining to such transaction will authenticate such PAN or Aadhar number in the prescribed manner; and receiver of a document for such transactions will ensure that the PAN or the Aadhaar number has been duly quoted therein and is authenticated. 

We hope the above explanation clarifies the change and found useful

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Regards,

TheTaxTellers Team,