Finance Minister Piyush Goyal on Friday presented the last budget of the Modi government in Lok Sabha. With 2019 being the election year, the finance minister has tried to appease the middle class and farmers in the budget by announcing tax rebates and income scheme for farmers.
The Budget, however, is a complex draft and often people with little knowledge of business and economics try it hard to understand the Budget speech. Are you among those who find it hard to understand the terminologies used in a budget speech? Well, we have tried to solve your problems with some explainers.
What is Standard Deduction
The government has announced an increase of Rs 10,000 in the standard deduction from Rs 40,000 to Rs 50,000 per year. The Standard Deduction or SD is a fixed amount in the salary of an individual which is not taxed, and thus reduces the overall taxable income, irrespective of expenses or investments made.
The total income is not the same as the taxable income as the government allows exemptions that can be deducted from the gross salary, and hence, not taxed. The increase in SD is in lieu with such tax exemptions that would benefit the salaried class. Unlike other tax saving documents (read: 80c), one does not need to provide documents or proofs for claiming SD.
Before 2018, when Finance Minister Arun Jaitley made the proposal to implement a Rs 40,000 SD, tax exempts for the year 2017-18 included medical reimbursements (Rs 15,000 per annum) and transport allowance (Rs 1600 per month) in a total of Rs 34,200 pa. This ceased to exist with the introduction of a standard deduction fixed at Rs 40,000- an increase of Rs 5,800 from old deductions.
Any salaried employee or pensioner can claim standard deductions.
What is TDS
Tax Deducted at Source (TDS) is the amount deducted at source (before the income is made disposable) from an individual by an authorised deductor and then deposited in the central government’s account. The TDS is based on the tax slabs prescribed by the Income Tax department. According to the Income Tax Department, “the deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.”
In the interim budget, the government increased the TDS threshold to Rs 40,000 from Rs 10,000 on interest earned on bank/post office deposits and to Rs 2.40 lakh from Rs 1.80 lakh for deduction of tax on rent.
Banks deduct TDS from the interest from Fixed Deposits. Earlier, the interest threshold of one or the sum of all FD accounts was Rs 10,000 in a year. It has now been increased to Rs 40,000. No TDS will be deducted from rental income up to Rs 2.40 lakh.
What is notional rent
The interim budget sought to abolish taxes on notional rent on the second self-occupied home by an individual. “Currently income tax on notional rent is payable if one has more than one self-occupied house. There are many middle-class families who have to maintain families at two locations due to jobs, children’s education, care of parents etc. Therefore, I am proposing no tax on the notional rent on the second self-occupied house,” said Interim Finance Minister Piyush Goyal.
If you own a property, taxes are deducted not only on the rent accrued if it is let out but also on “deemed rent” in case the property is vacant, based on the potential of earnings from the same. Thus, the tax is charged to property income on ‘notional’ basis.
The first property of an individual does not incur any income tax. However, a second property, whether rented or vacant, was taxed. Now, the government has allowed tax exemption on notional rent on a second self-occupied home, meaning that if you have an additional vacant property, you will not have to pay income tax for that. Any more property will be deemed taxable, whether or not it generates income.
What is 80C
Tax deductions up to Rs 1,50,000 per annum can be claimed from total income under section 80c. These deductions, to be submitted with verification documents and proofs (unlike Standard deductions), reduce the taxable income of an individual. Investments include Fixed deposits, public provident funds, life insurance, etc.
What is 80 D
Apart from the deductions under Section 80c, one is also allowed to claim deductions from total income for medical insurance. Section 80D lets you receive tax deductions on premiums on medical insurances. Deductions that can be claimed for self and family are allowed till up to Rs 25,000, while it is Rs 50,000 if self or parents are senior citizens.
What is Current tax slab
Perhaps the most notable announcement made in the interim budget Friday was the tax exemptions for those with an annual income of Rs 5 lakh. “Individuals with income up to Rs 5 lakh will not be required to pay any tax,” Goyal said while presenting Interim Budget for 2019-20 in Lok Sabha.
He said with this, individuals who are earning gross income of Rs 6.5 lakh per year and have made investments in savings instruments (including 80C), will be exempt from paying income tax.