This year was unique, since a number of provisions in both the Budgets (in February and in July) have significantly impacted taxpayers
The Finance (No. 2) Bill, announced on July 5, 2019, has created a buzz in the market, especially due to the so-called ‘Super-rich tax’. The maximum marginal rate (MMR) shooting up to 42.7 per cent has made high-income taxpayers anxious. On the other hand, the rebate announced in the Interim Budget in February 2019 for people with taxable income below Rs 5 lakh made the ‘target’ taxpayers happy. This year was unique, since a number of provisions in both the Budgets (in February and in July) have significantly impacted taxpayers. A quick recap of some of these provisions may be useful at this point. Some significant provisions that bring both relief and pain are elaborated below.
Beneficial tax-related announcements
Loans for purchase of electric vehicles: The Indian Government is keen to give a big push to the manufacturing of environment-friendly electric vehicles. To encourage buyers to opt for electric vehicles, it has introduced a new deduction for individuals in section 80EEB, under which interest payable on vehicle loans taken to purchase electric vehicles will now be eligible for deduction of up to Rs 150,000 per annum. This deduction is available for loans sanctioned between April 1, 2019 and March 31, 2023. However, the loan has to be taken from financial institutions such as banks and NBFCs. Therefore, it is a good idea for those planning to purchase vehicles (two-wheelers or four-wheelers) to avail of this beneficial provision, since the deduction will continue to be available for all the assessment years during the tenure of a loan.
Acquisition of residential property: The Finance (No.2) Bill has introduced a new section, 80EEA, under which an individual is eligible to claim a deduction of up to Rs 150,000 per annum for interest payable on a housing loan taken from a banking institution or housing finance company to purchase a residential house whose stamp duty value is Rs 45 lakh or less. The loan, however, should be sanctioned between April 1, 2019 and March 31, 2020, and the deduction will be available for all the assessment years during its tenure. There are two important conditions attached to this provision. First, the individual should not own any other residential property on the date the loan is sanctioned. Second, such person should not be already claiming a deduction under section 80EE (a similar provision introduced in FY 2016-17).
The following two important amendments were brought in by the Interim Budget in February 2019.
Notional rental income on second house property lifted: With effect from FY 2019-20, a person can own two self-occupied or vacant house properties and will not be required to offer one of these for tax on a deemed rent basis. This is a welcome relief for individuals who have houses in different cities and desire to keep both for their personal use. Hence, if you had been offering a house property to tax on a deemed rent basis in your past tax returns, you need not do so in this year. You can factor this in your advance tax liabilities. However, please note that the corresponding deduction of interest for a home loan for both the houses will be restricted to Rs 2 lakh in aggregate, and a notional rent will still apply to any additional house property.
Reinvestment of capital gains: Till last year, long-term capital gains arising from sale of residential houses were exempt from tax under section 54 if such gains were re-invested in another residential house in India, purchased within one year before or two years after, or constructed within three years after the sale. From FY 2019-20, this exemption has been extended to reinvestment in two residential houses. However, this benefit is only available if capital gains from sale of the original house do not exceed Rs 2 crore. Moreover, this exemption can only be availed once in the lifetime of a taxpayer.
Be aware and be compliant
You need to take note of some important provisions brought in this year so that you do not fall foul of the law.
Two per cent TDS on cash withdrawal: As a part of its anti-corruption reforms, the Government has been trying to discourage cash transactions. To take forward its agenda, it has introduced a new section, 194N, under which any bank, banking cooperative society or post office, which pays cash in excess of Rs 1 crore to a person during the financial year, will need to deduct TDS at the rate of 2 per cent of the sum exceeding Rs 1 crore. It is significant that a further amendment was brought in as corrigenda to the Bill when it was passed in the Parliament a few days ago. The Act now provides that the cap of Rs 1 crore will apply to aggregate withdrawals from all the accounts held by the recipient at a financial institution. Therefore, if you are in the habit of withdrawing large amounts of cash for your personal or business use, please keep this new provision in mind.
Mandatory filing of Income-tax return in certain circumstances: A new provision has been introduced, which requires mandatory filing of tax returns (even in the absence of taxable income) if individuals fulfil any of the following criteria:
- Individuals who have deposited more than Rs 1 crore in aggregate in one or more current accounts they maintain with a bank.
- They have incurred an expenditure in excess of Rs 2 lakh on themselves or others to travel to a foreign country.
- They have incurred expenditure in excess of Rs 1 lakh on electricity.
- They fulfill any other criteria prescribed.
These provisions have been applicable from April 1, 2019, and since the threshold amounts are fairly low, especially for people living in metro cities, please check whether you need to file a tax return for any of the reasons given above.(The writer is Partner - Personal Tax, PwC. The views given here are personal)