Income Tax

Budget 2019 – A quick look at some changes relevant to tax payers and investors

Income Tax slabs – no tax upto Rs. 5 lacs, however return filing mandatory
Individual tax
What it means?
For FY19-20, the income tax exemption limit is Rs. 2.5 lacs as announced in the interim budget in Feb 20. However, rebate under Section 87A is available if taxable income is upto Rs. 5 lacs (i.e. does not exceed 5 lacs).
Nil tax will be payable for income upto Rs. 5 lacs (for resident individuals).
Rich tax -3% surcharge on income of Rs. 2 crore and above and 7% on income above Rs. 5 crore.
Tax return for FY19-20 will need to be filed if income is above Rs. 2.5 lacs but lower than Rs. 5 lacs.
The effective tax rate will increase for high income earners. 
Standard deduction for salaried
No changes in standard deduction from Rs. 40,000.
 Tax payers were expecting some relief through higher standard deduction.
 
 
Buy that Home – incentive for budget homes below Rs. 45 lacs
Additional income tax relief of Rs. 1.5 lacs on home loan for purchase of house valued upto Rs. 45 lacs (prior to 31 March 2020).
What it means?
A great move to incentivize purchase of budget homes. 
 
Tax benefit will work out to 15,000 per year for a tax payer in the 10% tax bracket.
 
Those planning a purchase will have to ensure value does not cross Rs. 45 lacs – it would be relevant to consider stamp duty value when planning the purchase.
Going green – tax deduction of Rs. 150,000 on electric vehicles
Additional income tax deduction of Rs. 1.5 lacs on interest paid on purchase of electric vehicles.
What it means?
Good initiative. However, given high cost and low availability of electric vehicles, limited impact in next financial year.
A taxpayer in 30% tax slab will get a reasonable 50,000 saving.
Corporate tax and startups – lower tax rates but below expectation, less pain for startups
 
What it means?
Companies with turnover above Rs. 400 crores – tax rate reduced to 25% plus education cess and surcharge.
The reduction in rate should improve profitability for mid-sized companies that are struggling in the slowing economy.
 
 
 
However, market participants were expecting a larger threshold for companies.
Startups and their investors won’t require scrutiny from I-T department in respect of share premium issued to investors.
Startups have one less thing to worry about and can focus on their business.
E-Governance – in digital we trust
No charge on digital payments
What it means?
Merchant Discount Rate charges waived on cashless payment for both merchants and customers. 
  Part of Government’s initiative to digitize cash transfers.
 
Minor impact on banks profitability as they will absorb the cost.
Ease of doing taxes – Aadhar hai
Aadhar number can be used to file tax returns (PAN and Aadhar use is inter changeable).
What it means?
Obtaining PAN number is not difficult. However, the change represents a small operational ease in filing returns.
 
Stock market – long term capital gains tax stays
Guidance to SEBI to increase requirement of mandatory shareholding in companies to 35% from current 25%. 
What it means?
Details awaited but good move to increase liquidity of shares.
Companies like Wipro which have promoter holding in excess of 7% will be impacted.
 
No withdrawal of long-term capital gains tax
Market participants were expecting (hoping) for a gradual withdrawal of LTCG on equity shares – this would have boosted the stock markets immediately.

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