INDIA - Interim Budget 2019 - An update on personal tax implications
The interim Union Budget for 2019 was presented in Parliament on the 1 February 2019. The focus of the Finance Bill 2019 was providing relief to taxpayers on a lower income and introducing other populist measures.
Below are the key amendments proposed in the Finance Bill 2019 which will be effective from the fiscal year 2019-20 (i.e. 1 April 2019 to 31 March 2020).
Tax rates and rebate for individual taxpayers
The personal income tax rates, surcharge and the Health and Education cess for the fiscal year 2019-20 remain unchanged. The Finance Bill for 2019 has provided additional relief to taxpayers on a low income by increasing the limit of rebate available to resident taxpayers. The limit is increased from the existing INR 2,500 available for annual taxable income upto INR 0.35 million to INR 12,500 to be available for annual taxable income upto INR 0.5 million.
Standard deduction on salaried taxpayers
The standard deduction from salary income was reintroduced in the Union Budget for 2018. The Finance Bill for 2019 proposed to increase the annual limit for standard deduction from INR 40,000 to INR 50,000.
Relief for second residential property / deduction for interest on borrowed capital
Considering the difficulty of middle-class taxpayers having to maintain families at two locations on account of their job, children’s education, care of parents etc., the Finance Bill for 2019 proposes to exempt levy of income tax on notional rent on a second self-occupied property.
Consequentially, the Finance Bill for 2019 proposes a cap on interest deduction on borrowed capital for acquisition/construction/repair/renewal of residential property(ies) to an aggregate amount of INR 0.2 million.
Rollover benefit in respect of capital gains from transfer of residential house property
The provisions of income-tax law provide a rollover benefit to certain taxpayers that have taxable capital gains from the transfer of a long-term capital asset being a residential house (i.e. buildings or lands appurtenant). Such rollover benefit is available if the taxpayer has purchased or constructed one residential house in India within the specified period.
The Finance Bill for 2019 proposes to increase this rollover benefit to a taxpayer having capital gains up to INR 20 million for investment in two residential houses within the prescribed time limit. The benefit may only be available once in the lifetime of the taxpayer.
Individual taxpayers should consider the proposed amendments for upcoming fiscal year for their taxation and investment related decisions.