Budget 2019: Can this pre-poll Budget be a game changer?

The BJP-led government, in their last Budget right before the 2019 General Elections, has ushered in some dynamic tax proposals, especially impacting salaried small tax payers, pensioners, senior citizens and home buyers.

The FM has proposed a full tax rebate on annual taxable income up to Rs 5 lakh for only resident individuals. This means resident taxpayers having taxable income of up to Rs 5 lakh (net of all deductions and exemptions) do not have to pay any tax (as compared to the earlier Rs 3.5 lakh). Further, the standard deduction for salaried persons is raised from the current Rs 40,000 to Rs 50,000. Needless to say, these proposals come as a huge relief for the middle-class taxpayers. However, one has to note that in case of salaried individuals with taxable income above Rs 5 lakh, the only relief is an additional standard deduction benefit of Rs 10,000.

Finance Act 2017 had brought about an unpleasant shock by capping the loss from house property which could be set off against other heads of income in the same year to Rs 2 lakh (the balance has to be carried forward and set off against rental income of future years).

Currently, individuals holding more than one self-occupied house property are allowed to consider only one property as self-occupied at their option. The remaining property/properties are required to be treated as deemed to be let out (DLOP) and notional rent is to be offered to tax. In an unforeseen but well-planned move, the FM has now proposed an exemption on levy of income tax on notional rent on a second self-occupied house. This means individuals holding two self-occupied house properties will not be required to offer any notional rent to tax.

The ceiling deduction limit of Rs 2 lakh for interest on housing loan for a self-occupied house property is now proposed to apply to both the self-occupied properties combined. While this may seem like a welcome move for homeowners, this proposal may not appease to homeowners who have a housing loan outstanding against the second house property because of non-permissibility of carrying forward and set off of balance house property loss in future years due to now the second property being classified as SOP and not DLOP.

Various changes have been brought about in capital gain taxation over the years, making it more stringent. The current Budget has brought about a welcome change by proposing that benefit of rollover of long term capital gains from the sale of residential property under Section 54 of the Income-tax Act by allowing an option to make investment of two residential houses instead of just one in case of a taxpayer having capital gains up to Rs 2 crore. This is a once in a lifetime benefit and may provide convenience to homeowners to maintain two houses.

In another welcome move for small taxpayers, the TDS threshold on interest earned on bank/post office deposits is being raised from Rs 10,000 to Rs 40,000. This reduces hassles faced by small taxpayers whose total income falls before the minimum taxable limit but are forced to file income tax returns to claim the refund of taxes deducted at source.

Further, the TDS threshold for deduction of tax on rent is proposed to be increased from Rs 1.8 lakh to Rs 2.4 lakh, which is applicable to individuals who are subject to tax audit. This reduces hassles for both the recipient of the rent as well as the parties deducting tax.

Mayur Shah, Tax Partner, People Advisory Services, EY India

(Views expressed are personal)