The Finance Minister has proposed a host of tax sops in the interim Budget, bringing cheers among the salaried class, pensioners and small taxpayers. The dole-out has come in the form of hikes in standard deduction, TDS (tax deducted at source) on bank and post office savings deposits and TDS threshold for deduction of tax on rent, which could lead to more savings every year.
For salaried persons, the standard deduction is being raised from the current Rs 40,000 to Rs 50,000, which will give additional tax benefit of over Rs 3000 to over 3 crore salary earners and pensioners.
The proposal to hike TDS exemption limit on bank and post office deposits from Rs 10,000 to Rs 40,000 per year will bring in new depositors and ease tax administration for small savers. Tax will be payable only for interest income of above Rs 40,000 per year on bank fixed deposits. “Hiking the ceiling limit for TDS on bank deposits and small savings will act as a catalyst for this deposit segment by attracting the new depositors,” State Bank Chairman Rajnish Kumar said.
“But the biggest change is on the proposed changes in tax administration over the next 2 years wherein all tax returns will be processed in 24 hours and the refunds will be processed simultaneously. It is definitely a significant budget from the income tax perspective,” said Viabhav Agrawal, Head of Research, Angel Broking.
Akhil Chandna, Director, Grant Thornton India, said, “this electoral interim budget of the four and a half year old NDA government was positioned as a transformational vehicle. Besides the farm sector, it is clearly aimed at targeting the distressed middle class taxpayers and boosting their confidence. Raising the limit of standard deduction from Rs 40,000 to Rs 50,000 is an added boost and ensures more net-in-hand income for this class.”
The government has increased the TDS threshold for deduction of tax on rent to Rs 2.4 lakh from the current Rs 1.8 lakh, which will provide a big relief to small taxpayers, including salaried class. Also, the benefit of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses for those having capital gains up to Rs 2 crore. This benefit, however, can be availed once in a lifetime. “This opportunity would allow the lower middle classfamilies to buy their first home and boost the affordable housing segment,” said Essel Finance Home Loans Ltd CEO & Executive Director Ms Mini Nair on the Budget 2019. “Enhancing the threshold for TDS on interest from banks and post office deposits to Rs 40,000 and on rental payments to Rs 2,40,000 annually will bring relief again for middle class taxpayers,” said an analyst.
Rise in disposable income for middle class will prop up growth
While individuals with taxable income of up to Rs 5 lakh will now pay zero tax and save up to Rs 10,000 per annum, the saving for bigger tax payers would be limited to savings of up to Rs 3,000 on account of increase in standard deduction limit from Rs 30,000 to Rs 40,000. The decision to reduce tax burden for middle class may leave up to Rs 10,000 per annum more in the hands of individuals which, may eventually get utilised for consumption and may thereby push growth in the economy. This comes as a much needed relief for not only small tax payers but also for the economy that has seen some decline in consumption growth. While the credit growth for personal loan segment climbed to over 20 per cent in January and February 2018, it fell to 15.1 per cent in September before rising to 17.2 per cent in November. For an economy which is largely consumption driven, a rise in disposable income at the hands of middle class will prop up growth. For the higher income category, while the direct savings amount to only Rs 3,000 per year, there is a sense that the affluent would be relieved to see no addition to their existing tax burden. However, that may currently be limited for now and they will have to wait till the full budget in July 2019 for the status quo to continue.
The Finance Minister also announced additional deductions such as interest on home loan up to Rs 2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance, medical expenditure on senior citizens. This is expected to provide a tax benefit of Rs 18,500 crore to over 3 crore middle-class taxpayers, including salaried class, self-employed, small businesses, small traders, pensioners and senior citizens.
Analysts are expecting a pick-up in consumption in the wake of higher tax rebates. “With increase tax rebate, it is expected that surplus cash will be available in the hands of the consumers thus resulting in a slight off-take of consumption,” said Jimmy Patel, MD & CEO, Quantum Mutual fund.