The FM has proposed to raise the threshold limit on interest income from bank and post office deposits from Rs 10,000 to Rs 40,000, on which tax is required to be deducted at source.
By Divya Baweja, Divya Agarwal and Nidhi Kumar
The much-awaited Interim Budget has been announced by the NDA government, which has certainly made the middle class happy.
The government in its tenure of 4.5 years introduced several changes to bring down the tax burden on the middle class, e.g. income exemption limit raised to RS 2.5 lakhs, the lowest tax rate of 10 percent replaced with 5 percent, deduction under section 80C increased to Rs 1.5 lakhs, etc.
This year also, the government lived up to the expectations of the common man and proposed tax rebate that will benefit the individuals earning income up to Rs 5 lakhs. Though there are no changes in the tax slabs and the rate of tax, the FM has proposed to raise the income limit to Rs 5 lakhs from the erstwhile limit of Rs 3.5 lakhs on which rebate of tax is available to resident individual taxpayers.
Consequently, resident individuals will be eligible to claim a tax rebate of up to Rs 12,500 as against the current limit of Rs 2,500, thereby reducing the total tax liability to NIL. This change has no impact on very senior citizens (aged 80 years and above) as their income up to Rs 5 lakhs is anyways exempt from tax.
In parallel, the amount of standard deduction has been proposed to increase from Rs 40,000 to Rs 50,000 for salaried class and pensioners.
In view of the proposed changes, a resident salaried individual earning a gross salary of Rs 7 lakhs can go tax-free if he makes specified tax saving investments of up to Rs 1.5 lakhs and by availing the rebate available for income up to Rs 5 lakhs.
Another expectation of the common man addressed by this Budget was of repealing taxation on notional rent. As per the existing rules, an individual having more than one house-property can treat one house as self-occupied and other properties as deemed let out, though no actual rental income is earned by him. This causes hardship by incurring tax cost on notional rental income. To address this genuine concern, the FM has proposed not to tax notional rent on the second property.
However, it is worthy to note that as part of this proposal, the aggregate amount of deduction towards interest on loan for both the properties will be restricted to Rs 2 lakhs. This would adversely impact the set-off and carry forward of loss under House Property arising due to interest on loan taken against the house property.
In light of the existing investment pattern of individuals wanting to invest in more than one house property, FM has proposed changes in the provisions relating to deduction on long-term capital gain. As a welcome move, the amount of long-term capital gain on sale of residential house can now be invested in the purchase or construction of up to two house properties from the existing limit of one. This benefit is available only once in a lifetime and in cases where the amount of capital gain does not exceed Rs 2 crore.
The FM has also proposed to raise the threshold limit on interest income from bank and post office deposits from Rs 10,000 to Rs 40,000, on which tax is required to be deducted at source. The proposal will benefit small depositors and non-working spouses having a total income below the tax exemption limit, by easing the burden of filing returns to claim refund.
On an overall basis, though there has been no change in the tax rates and slabs, the Interim Budget has given the common man many reasons to rejoice.(Divya Baweja is Partner, Deloitte India; Divya Agarwal is Senior Manager with Deloitte Haskins and Sells LLP; and Nidhi Kumar is Deputy Manager with Deloitte Haskins and Sells LLP.)You can now invest in mutual funds with moneycontrol. Download moneycontrol transact app. A dedicated app to explore, research and buy mutual funds.