What are the implications for tax payers from Budget 2019?

In India, the process of tax payment has normally been more complex than the fine print of the Finance Bill. The budget has made an attempt to simplify the process for individual tax payers.

Jul 15, 2019 05:07 IST India Infoline News Service

Taxes
Ahead of the budget, there were expectations that personal tax slabs would be raised, exemptions would be increased and corporate taxes would be cut. But, good things rarely come in hordes because the centre has its own budgetary constraints. Here is how.
 
No change in personal income tax slabs
Personal taxes were left untouched. In the interim budget presented in February 2019, the government had already made incomes up to Rs5 lakhs tax-exempt via rebate under Section 87A. But if you consider the impact of higher standard deduction at Rs50,000 and the benefit of tax exemptions, a much higher income level can be structured as tax free.
 
Tax exemptions have been given on a conditional basis
It would be unfair to say that there was no tax exemption granted because conditional exemptions have been provided in the budget. Firstly, the budget introduced Section 80EEA with additional exemption of Rs1.50 lakhs for interest on low cost homes (up to stamp value of Rs45 lakhs). This is in addition to the Section 24 limit of Rs2 lakhs taking the overall limit to Rs3.50 lakhs. Secondly, there is an exemption of Rs1.50 lakhs on purchase of environment friendly electrical vehicles (EVs). Lastly, the tax free withdrawal on NPS has been increased from 40% to 60%.
 
Wealthy tax payers have to pay higher taxes
The government has, time and again, spoken about progressive taxation which implies high earners pay more tax. A start was made in the past with surcharge of 10% on incomes above Rs50 lakhs and a surcharge of 15% on incomes above Rs1 crore. Now the latest Union Budget has added two more slabs for surcharge. Incomes above Rs2cr will attract surcharge at 25% while those earning above Rs5cr per year will pay surcharge of 37%.
 
Income Slab Tax Rate Surcharge Cess Effective Tax Rate
Rs50 l to Rs1 cr 30% 10% 4% 34.32%
Rs1 cr to Rs2 cr 30% 15% 4% 35.88%
Rs2 cr to Rs5 cr 30% 25% 4% 39.00%
Above Rs5 cr 30% 37% 4% 42.74%
 
Effectively, the tax liability of persons earning above Rs2cr and above Rs5cr has gone up substantially after this budget.
 
Easier tax administration for individual tax payers
  • In India, the process of tax payment has normally been more complex than the fine print of the Finance Bill. The budget has made an attempt to simplify the process for individual tax payers. Here are a few highlights.
  • PAN and Aadhar will be interchangeable. Individuals can now file tax returns with just Aadhar and it can also be quoted for high value transactions.
  • The budget has moved towards faceless assessment up to a certain threshold so that individual bias and influence can be reduced to the bare minimum.
  • Income Tax department is moving towards a new system where basic tax filing forms for individuals will be pre-filled based on Form 16 and Form 26AS data.
 
Corporates are disappointed and FPIs are worried
Even as individual tax payers move towards lower tax burden and simpler processes, there are some worries for corporates and foreign portfolio investors.
 
  • Corporate were expecting a tax cut from 30% to 25% across the board. However, the budget just increased the turnover threshold for the exemption from Rs250cr to Rs400cr.
  • Buybacks will now be taxed at 20% to put them on par with dividends. This does away with the arbitrage and cash-rich companies are not too happy.
  • Large cash withdrawals above Rs1cr in a year will attract TDS at 2%. It is all about audit trail but corporates are worried about the procedural hassles.
  • Finally, FPIs structured as trusts (not as corporates) are worried that the higher surcharge could increase their tax liability. Clarification is awaited!
 
In a nutshell, on the direct tax front, the budget has some positives for individuals but has left corporates with some thoughts to chew over.

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