This Budget seems to have aptly synchronised with the government’s idea of ‘Minimum Government, Maximum Governance’.
By Rajesh Patil, Urvi Shah and Rakhi Thakkar
The Finance Minister presented her much awaited and much talked about first Union Budget with a vision to make India a US$ 5 trillion dollar economy in just a few years. The government in outlining the measures for India’s development, has envisaged prosperity of farmers, financial stability to the middle class and further contribution of the super rich to the growth of Indian economy. Ease of living, housing for all, water to all households, “One nation, one grid”, national education policy to create India as a hub for higher education are all welcome moves by the government. Some of the key proposals of the Finance (No. 2) Bill, 2019 for the common man are as under:
Rate of tax
There are no revisions to the tax slab rates. There is no tax if net taxable income is less than INR 5 lakhs. Surcharge at the rate of 25 percent as against current rate of 15 percent to be levied on those having taxable income between INR 2 crores to 5 crores. Surcharge would be levied at the rate of 37 percent instead of the current rate of 15 percent for those having taxable income of more than INR 5 crores.
Consequently, effective tax rate for super rich individuals would approximately increase by 3 percent with taxable income between INR 2 to 5 crores, and to 7 percent for those having taxable income above INR 5 crores.
The maximum marginal rate may be high for super rich but the same is comparable to the highest tax rates in other developed countries such as Germany, United Kingdom and Japan.
Tax incentives for electric vehicles
Considering the large consumer base in India, the government aims to leapfrog and envision India as a global hub of manufacturing of electric vehicles. Further, the incentives will encourage faster adoption of electric vehicles with greater emphasis on providing affordable and environment friendly public transportation options for the common man.
In order to promote usage of electric vehicles and make them affordable, deduction up to INR 1.5 Lakhs will be allowed on interest paid on loan taken for the purchase of an electric vehicle. The loan should be sanctioned by the specified financial institution during the period 1 April 2019 to 31 March 2023. Further, no electric vehicle should be owned by the taxpayer as on the date of sanctioning of loan.
Tax incentives for affordable housing
To achieve goal of ‘Housing for All’ and to promote affordable housing, deduction up to INR 1.5 Lakhs will be allowed in respect of interest paid on loans borrowed during financial year 2019-20, for purchase of first house having stamp duty value up to INR 45 lakhs.
It is expected that this will result into benefit of around INR 7 lakhs for the middle class home-buyers over their loan tenure of 15 years.
Incentives to Pension System
The pension schemes of the government follow the principle of sharing through distribution for the wellness of the society. The government has increased exemption limit from current 40 percent to 60 percent of payment on final withdrawal from National Pension Scheme.
The government has decided to give pension benefit to about 3 crore retail traders and small shopkeepers whose annual turnover is less than INR 1.5 crores and INR 3,000 per month to crores of workers in unorganised and informal sectors on attaining the age of 60 years.
Return of income
For ease and convenience of taxpayers, the government has proposed to allow interchangeability of PAN and Aadhaar for filing of Income Tax returns and wherever they are required to quote PAN. Aadhaar will be issued to NRIs having Indian passports.
To encourage accuracy and ease of filing of income tax returns, pre-filled tax returns will be made available to taxpayers providing details of salary income, capital gains from securities, bank interests, and dividends etc. and tax deductions.
Currently, an individual is required to furnish the return of income only if the total income exceeds the maximum amount not chargeable to tax, subject to certain exceptions.In order to ensure that persons, who enter into certain high value transactions, furnish their return of income, tax return filing has been made mandatory in the following cases:
- Deposited an amount equal to or exceeding Rs 1 crore in one or more current accounts; or
- Expenditure incurred of an amount equal to or exceeding Rs 2 Lakh for himself or any other person for foreign travel; or
- Expenditure incurred of an amount or aggregate of the amounts exceeding Rs 1 Lakh towards consumption of electricity; or
- Fulfills such other conditions as may be prescribed.
Separately, tax filing is also mandatory if the total income of the person exceeds maximum amount not chargeable to tax before claiming of rollover benefits in respect of capital gains.
As a paradigm shift in assessments, faceless e-assessment system is proposed to be introduced involving no human interface to eliminate undesirable practices in the conduct of assessments. Notices would be issued by a central cell, without disclosing the details of the tax officer or the taxpayer to each other.
Gifts to non-residents
Gifts (money paid / property) made by an Indian resident to a non-resident are currently not being offered to tax in India on the ground that income does not accrue or arise in India.
To ensure that such gifts are subject to tax in India, amendment is proposed that such gifts made, on or after 5 July 2019, shall be deemed to accrue or arise in India and shall be taxable in the hands of the non-resident. The existing exemptions for gifts to specified persons and treaty benefits continue to be available.
To promote digital payments and to discourage the practice of making business payments in cash, the government has introduced tax to be deducted at source at 2 percent by a banking company or cooperative bank or post office on cash withdrawals by any person in excess of INR 1 crore in aggregate during the year.
TDS on contractual / professional payments by individual
Individuals and HUFs who are not subject to tax audit will be liable to deduct tax at source at the rate of 5 percent on payments exceeding INR 50 lakhs per annum made to resident contractors and professionals.
The Union Budget 2019 seems to have appeased noted cartoonist Mr. R. K. Laxman’s ‘Common Man’ coupled with the long-term objective of the progress of the Indian economy. In a true sense this Budget seems to have aptly synchronised with the government’s idea of ‘Minimum Government, Maximum Governance’.Rajesh Patil is Director, Urvi Shah and Rakhi Thakkar are Manager with Deloitte Haskins and Sells LLP. LLP Views are personal