The individual taxpayers are, in many ways, the backbone of the Indian economy. They not only contribute as much as corporates to the tax kitty, but also share a large part of the indirect tax burden as the impact eventually falls on them. Any budget is expected to give some sops for the individual tax payer. It is not just about rates of tax but also about exemptions, rebates and other procedural simplifications. The challenge for the individual tax payer is to craft a strategy to make the most of it.
Sit with your employer and financial advisor for salary structuring
If you combine the impact of the interim budget presented in February and the final budget presented in July, then the impact is visible in the entry slabs and the higher income slabs. The interim budget has already made income up to Rs550,000 fully tax-free. Up to an income level of Rs5 lakhs, the tax payable will be given back to you as a rebate. On top of that you have enhanced standard deduction of Rs50,000. The challenge for you is to structure your HRA and other allowances in such a way as to make a good part of your income tax-free.
Secondly, you must sit down with your financial advisor and see how to make the best of Section 80C, Section 80D and Section 24 in such a way as to make total income levels up to Rs10 lakhs entirely tax free by bringing net taxable income after all exemptions below Rs5 lakhs wherever possible.
The challenge is much bigger for the super high-income groups. Income above Rs2cr will now attract surcharge at the rate of 25% instead of 15%. Similarly, income above Rs5cr will now attract surcharge at the rate of 37% instead of 15%. Sit down with your tax consultant and structure the earnings and savings in the best possible way to reduce the impact.
Rethink the way you plan your Section 80C exemptions
Budget 2019 has given you some incentives to rethink the way you structure your Section 80C exemption limits. Of course, the outer limit still remains at Rs150,000 only but significant tweaking has been done. For example, investment in CPSE ETF (the government ETF for disinvestment) is also eligible for Section 80C exemption, subject to lock in of 3 years. Apart from the regular ELSS funds, this is an additional means to reduce your tax outgo through equity exposure in high dividend paying PSUs.
Secondly, don’t miss out on the renewed thrust to the NPS. Contributions to the National Pension Scheme (NPS) under Section 80CCD, enhances your total exemption limit of Section 80C from Rs150,000 to Rs200,000. But the big challenge in the NPS was that only 40% of the corpus if withdrawn was tax-free. Budget 2019 has increased that exemption limit from 40% to 60%. Now you can effectively use NPS for tax saving, apart from social security.
Budget 2019 also forces you to rethink your home buying strategy
Low cost housing or affordable housing has been a thrust area for the government for the last 3 years. However, Budget 2019 has made some tangible strides in this direction. Interest on home loans is available as an exemption up to Rs2 lakhs per year under Section 24 of the Income Tax Act. Budget 2019 has added a new Section 80EEA, which gives an additional tax exemption of Rs1.50 lakhs for low cost homes up to the registered value of Rs45 lakhs. That effectively raises the exemption limit to Rs3.50 lakhs per annum if the value of the property purchased in the next one year is less than Rs45 lakhs.
As a home buying strategy, you need to look at smaller properties as an investment and reduce your home loan tenure so that you can get the full benefits of Section 24 and Section 80EEA combined. Shorter loan tenure will work best in realizing the full benefit of these tax annual exemptions.
Procedural shifts in tax administration could be helpful
There are quite a few procedural shifts that have been made in the Union Budget 2019. For example, now the Aadhar card will be the central identifier for all individuals. That means, even if you do not have a PAN card but only an Aadhar, you can still file tax returns using your Aadhar card. That saves you the task of maintaining two identity cards and also saves you the hassles of mapping your PAN card with Aadhar card. Going ahead, even for large high value purchases, quoting your Aadhar card number will be sufficient and you don’t need to quote your PAN number.
Apart from making Aadhar the central data repository, there are additional things you can plan for. For individuals, the tax filing details will be automatically populated from Form 16 and Form 26. That will save you a lot of hassles in tax filing. Secondly, the Budget has also moved towards faceless assessment. That means any objections or clarifications will be entirely electronic and the hassle of multiple appearances before the assessing officer (AO) can be done away with.
Finally, some additional points to plan for
There are some additional points you need to keep in mind post the budget. Here are two such items.
STT on ITM options on the expiry day will not be levied on the notional value. Instead it will be levied on the actual profits earned by the trader. This will prevent the rush to cover options positions on the expiry day.
Gifting to NRIs will now become a lot more complex. Any gifts above a reasonable sum will be treated as income of the NRI accruing during the financial year and will attract withholding tax at the extant rates.
To sum it up, the budget 2019 has made some interesting changes you need to prepare yourself for. Most of the changes are in your larger interest!