As expected, the budget has been populist, where many sops have been provided to middle-class tax payers and farmers. Overall, it appears to be a well-balanced budget, with a mix of populist and pragmatic statements. The most critical aspect to this was that the fiscal deficit targets be maintained even after doling out benefits. The real estate sector has been given an impetus by extending the tax holiday for affordable housing- extending the exemption period for taxing notional rent on unsold inventory from one year to two years rollover capital gains benefit for two houses, among others. This will go a long way in meeting the government's aim of 'Housing for All by 2022'.
Here are some of the key points from Budget 2019 for Direct and Indirect Tax:
Direct Tax Highlights
Effective Tax Rates
There is no change in personal income tax slab rates. However, the rebate under section 87A is proposed to be increased from INR 2,500 to INR 12,500 in cases where the total taxable income does not exceed INR 500,000. This would be effective from Assessment Year 2020-21.
For companies/ LLP/ Firms
There is no change in the tax rates.
The reduced tax rate of 25% shall be for the companies with turnover/gross receipts of INR 2,500 million or less in the Financial Year (FY) 2017-18 instead of earlier FY 2016-17.
Relief measures and enhancement of Tax Incentives
Increase in the limit of Standard Deduction
Last year, the Finance Act, 2018, introduced a standard deduction of INR 40,000 for salaried taxpayers. This limit is now proposed to be increased to INR 50,000.
Income from House Property
Currently, in the case where a taxpayer holds more than one house, the tax exemption can be claimed for any one property as self-occupied, at the option of the taxpayer. For any other houses, the taxpayer is required to pay tax, (even if it is not let out, on notional rent treating the property as being deemed to be let out). It is proposed that the exemption be extended for two properties instead of one.
It further seeks to provide relief to the taxpayers, where the property is treated as inventory, and the same remains unsold. It is proposed that the notional rent in respect of such unsold inventory will not be considered as taxable for up to two years, (instead of the current one year), from the end of the financial year in which the certificate of completion is obtained from the competent authority.
Currently, a deduction of up to INR 200,000 is allowed towards interest on borrowing for acquisition or construction of self-occupied house property.
With the proposed amendment of treating two properties as self-occupied, it has been clarified that the above deduction is an aggregate amount of deduction available for all self occupied properties.
Exemption from Capital Gain
At present, an exemption from capital gains arising from the sale of a residential house can be claimed if the taxpayer invests in another residential house. This exemption is restricted to investment by way of purchase or construction of only one residential house.
The Finance Bill proposes a one-time relief to taxpayers for capital gains arising from the sale of residential property (not exceeding INR 20 million) to utilize the amount for purchase or construction of two residential houses instead of one.
Tax Incentives for Housing Projects
To expand the supply of affordable housing, section 80-IBA was inserted in the Act vide Finance Act, 2016 to provide for 100% deduction of the profits earned from developing and building affordable housing projects if such housing project is approved by the competent authority before the 31March, 2019 subject to specified conditions. With a view to further provide impetus to supply of affordable housing, Finance Bill, 2019 proposes to extend the time limit for obtaining approval from the competent authority from 31 March 2019 to 31 March 2020.
Intending to provide relief to the small depositors/taxpayers and also reducing compliance burden, Finance Bill 2019 proposes to amend Section 194A and Section 194I of the Act and increase the threshold limits.
- Section 194A requires every banking company, co-operative society and post office to withhold tax @ 10% on payment of income by way of interest other than "Interest on securities," if the same exceeds INR 10,000. Finance Bill, 2019 proposes to increase this threshold limit from INR 10,000 to INR 40,000.
- Section 194-I of the Act, requires every person (subject to certain exceptions) to withhold tax @ 2% or 10% on payment of income by way of rent, in excess of INR 180,000. Finance Bill, 2019 proposes to increase such threshold limit from INR 180,000 to INR 240,000.
Indirect Tax Highlights
Goods and Services Tax (GST)
Considering that the amendments required are already introduced by the GST Council from time-to-time; no amendments were proposed to the GST legislation in the Union Budget.
The Finance Minister, however, mentioned the key decisions taken recently and those which are proposed:
- Most items of daily use of the poor and middle class are already between 0 and 5 percent tax slab
- Threshold limit for registration under GST proposed to be doubled from INR 2 million to 4 million benefitting small businesses
- Small businesses with a turnover of up to INR 15 million would soon be eligible for a composition scheme of 1% flat rate without input tax credit, with a requirement to file only one annual return
- Small service providers with a turnover of up to INR 5 million can avail the benefit of composition scheme of paying 6% GST without input tax credit (ITC) instead of 18% with ITC
- It has been proposed to bring more than 90% of the taxpayers with a turnover of less than INR 50 million under the quarterly return filing scheme
- GST burden on home buyers is proposed to be reduced by appointing a Group of Ministers to examine and make recommendations to rationalize GST on the real estate sector
- Customs duty rates have been left unchanged considering this was an interim budget
- No new legislative amendments in the Customs Act, 1962 have been proposed
- In view of the representations received, the government has permitted activity of labeling/fixing the retail sale price, etc. in public bonded warehouses without the requirement of taking permission under section 65 of the Customs Act, 1962 (Earlier this benefit was restricted to private bonded warehouses only)
- The Finance Minister reiterated the steps taken to promote 'Make in India' initiative by abolishing customs duty on 36 capital goods in the past
It should be noted that with GST acquiring a federal character and the GST council being empowered to take decisions, changes to GST are outside the Union Budget system. It can be said that the GST budget was introduced in the 31st GST Council meeting (dated 22 December 2018), when a slew of changes were introduced.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.