1 February 2019
Budget Connect 2019 Tax Alert – Budget impact
Direct tax proposals in Union Budget 2019 On 1 February 2019, the Finance Minister presented the Interim Budget for 2019-20 in the Parliament. This Tax Alert provides the key highlights of the Interim Budget. In keeping with the convention while presenting an interim budget in an election year, there are no major amendments proposed to the direct tax laws. There are no proposed changes to tax bands or rates for individual taxpayers. For domestic companies, for lower basic tax rate of 25% in financial year (FY) 2019-20, the base year for turnover less than INR 2500m is shifted ahead by one year to FY 2017-18. There are, however, some proposals which will apply from FY 2019-20 which the Government has introduced by deviating from the past convention of not announcing major tax proposals in the Interim Budget. These proposals include enhancement of standard deduction for salaried taxpayers, higher tax rebate for individuals, nil annual value for two self-occupied house properties, one-time long term capital gains rollover benefit for investment in two residential houses, higher withholding tax thresholds for interest and rent to resident taxpayers, extension of profit-linked deduction for affordable housing projects to projects approved till 31 March 2020 and also an extended period of two years for benefit of nil annual value for vacant unsold house property held as stock-in-trade.
Budget Connect 2019
Impact analysis ►
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Most of the direct tax proposals contained in the Budget 2019 are intended to provide direct or indirect benefits to the taxpayers – particularly, small taxpayers like middle class, salary earners, pensioners and senior citizens. While one more self-occupied house property can now be eligible for nil annual value, taxpayers would do well to compare such tax benefit with consequential loss of interest deduction and exercise the option only where it optimizes the tax benefit. The long term capital gain roll over benefit for two houses is once-in-a-lifetime optional benefit and, hence, may be exercised with caution. The extension of time limit for approval of affordable housing projects for profit-linked deduction and extended time limit of two years for availing nil annual value on unsold/vacant real estate will be beneficial to real estate developers which will provide fillip to the industry to offer better prices to the consumers.
Please read further for a more detailed summary of the key policy announcements and significant tax proposals in Budget 2019.
Budget Connect 2019
Budget Connect 2019 Direct tax reforms
Direct tax proposals (All proposals will be effective from FY 2019-20 unless otherwise specified)
Personal taxation ►
Tax Rates ►
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Increase in standard deduction ►
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Standard deduction for salaried taxpayers is increased from INR 40,000 to INR 50,000. The standard deduction is a deduction provided to the taxpayers without a requirement to furnish any evidence for claiming such a deduction.
Taxation of self-occupied house property: ►
Currently, taxpayers who own two residential houses, which are not self-occupied, are required to impute a notional value for rental income for one property and the value for the other house is taken as zero. Now imputation of notional rental value will apply if taxpayer owns more than two self-occupied residential houses.
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But, deduction available on interest paid on mortgage loan is restricted to INR 200,000 for both above residential houses, on which no notional rent imputation is required.
Capital gains on residential house ►
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No changes in tax rates
At present, capital gains earned on sale of residential house is exempt if it is reinvested in one residential house in India. The Interim Budget 2019 provides for a one-time exemption from capital gains which are reinvested in two residential houses in India instead of one residential house. To avail the exemption for reinvestment in two residential houses, the capital gains should not exceed INR 20 million.
Tax rebate for resident individuals ►
Currently, a tax rebate of INR 2,500 is provided to individual resident taxpayers whose taxable income is less than INR 350,000. The tax rebate is now extended to taxpayers whose taxable income is less than INR 500,000 and thus increase in tax rebate to INR 12,500. This effectively means that income up to INR 500,000 is exempt from tax.
Budget Connect 2019
Corporate taxation ►
Tax rates ►
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Incentives in housing sector ►
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Currently, developers of real estate property get relief against notional annual value taxation in respect of unsold inventory held as stock-in-trade for one year from the end of financial year in which completion certificate is obtained from competent authority. With a view to further promote the real estate sector, the relief from the notional annual value in respect of unsold inventory is extended to two years.
Time limit for obtaining approval for affordable housing project ►
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No changes in tax rates proposed. But for domestic companies, for lower basic tax rate of 25% in FY r 2019-20, the base year for turnover less than INR 2500m is shifted ahead by one year to FY 2017-18. Thus, a domestic company having turnover not exceeding INR 2500m in FY 2017-18 will be liable to basic tax rate of 25% in FY 2019-20 (regardless of the quantum of turnover in FY 2018-19 or 2019-20)
Currently, 100% deduction of profits and gains is available if such profits and gains are derived by an undertaking from the business of developing and building affordable housing projects upon fulfilment of certain conditions. One of the conditions is that the housing project should be approved by the competent authority between 1 June 2016 to 31 March 2019. With a view to augment the supply of affordable houses, the time limit for obtaining approval is extended from 31 March 2019 to 31 March 2020.
Increase in thresholds for withholding tax ►
The threshold for withholding tax @ 10% on interest payments (other than interest on securities) made to residents by a bank, a co-operative society engaged in banking business or on notified deposit with post office, is increased from INR 10,000 to INR 40,000.
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The threshold for withholding tax on rent payments to residents for use of land or building (including factory building) or any machinery or plant or equipment or furniture or fittings is increased from INR 180,000 to INR 240,000.
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Budget Connect 2019
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Budget Connect 2019
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