Budget 2019: 10 key income tax proposals and their impact

As far as any revision in income tax slabs and income tax rates is concerned Budget 2019 has maintained the status quo. However, there are few proposals that may still be of interest to the taxpayers in not only making their tax life easier but also giving them more options to choose tax saving investments or even save more tax. Here are few of those proposals, the existing tax laws, their impact and what you as a taxpayer may do: 

1. CPSE ETF to get similar tax benefits as ELSS

Proposal: The FM has proposed to extend the benefit of section 80C for investments made in Central Public Sector Enterprise (CPSE) exchange-traded fund (ETF). The tax saving will be similar to the tax benefit available in the equity-linked savings scheme (ELSS) is currently available to mutual funds.

Existing: ELSS is the only market linked tax saver that has a three-year lock in period. Ulips, NPS are other tax savers but have longer lock-in tenure.

Impact: Now, taxpayers will have one more market linked tax saving investment to choose from.

What to do: CPSE ETF has a diversified portfolio with stocks from different stocks but it will be comprising of PSU stocks which makes it an exposure only to specific stock of companies. Choose carefully and not merely to save tax. 

2. TDS on life insurance policies increased

Proposal: Budget 2019 has proposed to raise the tax at source (TDS) limit in the case of life insurance policies from 1 to 5 per cent of the amount to be paid by the insurance companies if the policy does not satisfy section 10)10D) condition. It is proposed to deduct tax on net income so that the income as per TDS return of the deductor can be matched automatically with the return of income filed by the assessee.

Existing: Under Section 194DA of the Income Tax Act, 1961, any amount received by the life insurance policyholder from an insurer is subject to TDS of 1 per cent, if the maturity proceed is not exempted under Section 10(10D). If in the life insurance policies the sum assured is less than 10 times the premium amount, the policy proceeds are not tax-free under Section 10(10D). Currently, TDS is on the gross amount.

Impact: The amount of TDS will come down compared to the earlier situation even though the rate has gone up.

What to do: Such a situation where the sum assured is less than ten times of premium is generally in the case of single premium insurance policies. The single premium policies typically have the option to choose 5 times or ten times of life cover i.e. sum assured. Choose sum assured that assures tax-free income. 

3. Additional tax benefit on buying affordable housing

Proposal: A deduction of up to Rs 1.5 lakh is proposed on home loan interest payments under the newly introduced section 80EEA.

Existing: On self-occupied properties, under section 24, interest paid in a home loan is deductible up to Rs 2 lakh in a year.

Impact: The tax benefit under section 80EEA is in addition to section 24. So, the total benefit can go up to Rs 3.5 lakh. However, the same amount of interest cannot be availed under both sections.

What to do: There are certain conditions before one may avail the tax benefit under the new section such as the assessee should not own any residential house property on the date of sanction of loan, loan should be sanctioned in FY 2019-20, registration cost of the house should not be more than Rs 45 lakh etc. 

4. Income Tax Returns will come pre-filled

Proposal: For ease and better compliance, pre-filled Income Tax Returns (ITR) would be introduced.

Existing: Currently, the taxpayer has to enter the information by oneself on gains and losses incurred in various asset classes. Such information has to be sourced by the taxpayers from banks, mutual fund comapnies etc.

Impact: Not only the ITR process becomes better compliant but also easier and quicker. Chances of leaving out information would be less and running around to service an income tax notice will get minimized.

What to do: Link all your investments with your PAN which although is mandatory in most cases. 

5. PAN and Aadhaar interchangeable

Proposal: It has been proposed that PAN and Aadhaar will be interchangeable, allowing those who do not have PAN to file income tax returns.

Existing: Without PAN, filing of ITR is not possible. It is mandatory to file ITR if the gross total income of an assessee is more than the maximum amount not chargeable to tax.

Impact: If the proposals go through, one can use the Aadhaar to file the ITR.

What to do: Just in case, you do not have a PAN, now you may file ITR using Aadhaar. 

6. Surcharge for super-rich

Proposal: The FM has proposed to tax the super-rich by creating a new income slab for them as far as surcharge is concerned. In her speech, the FM has proposed a higher surcharge for income category falling between Rs 2 crore to Rs 5 crore and for those earning above Rs 5 crore.

Impact: The effective tax rate for them will increase by 3.12 per cent and 6.86 per cent, respectively.

Existing: Currently. for those with income above Rs 50 lakh, there is an additional payout in the form of a surcharge. If net income is more than Rs 50 lakh but less than Rs 1 crore, a Surcharge of 10 per cent on the amount of income tax is to be levied. For net income more than Rs 1 crore, a Surcharge of 15 per cent on the amount of income tax is to be levied. In such cases, the Health and Education cess of 4 per cent will be levied on the amount of income tax plus surcharge. 

7. TDS on cash withdrawals

Making cash withdrawals from a bank account for business payments will be bear a TDS of 2 per cent for an amount exceeding Rs 1 crore in a year. 

8. No additional charges or Merchant Discount Rate (MDR)

Proposals: No additional charges or Merchant Discount Rate (MDR) will be imposed either on customers or on merchants and business establishments with annual turnover more than Rs 50 crore.

Impact: Some merchants used to charge 2 per cent for swiping the credit cards at the time of purchase. Going forward, as they won’t incur MDR, they should not charge from customers. 

9. Deduction for purchase of electric vehicles

Proposals: Income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles, has been proposed in the budget.

Impact: Taken together with the low GST on electric vehicles, for those who are willing to opt for such vehicles will be beneficial. 

10. Advantage NPS

NPS maturity corpus has been proposed to be made tax-free. On maturity at age 60, only up to 60 per cent can be withdrawn.

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