Worried About Personal Financial Planning? Here’s a Guide For 2019
Changes on the personal income tax front – introduced in the Budget 2019 – have come into effect.
Financial year 2019-2020 took off amid the euphoria over an all-time high Sensex, with the benchmark peaking at the 39,000 mark. As the new fiscal commences, changes in the personal income tax front introduced in the Budget 2019, have come into effect.
This is seen as a good transition for the taxpayer. Though the government didn’t touch tax slabs, it introduced other benefits for the salaried class. Tax slabs of 0%, 5%, 20% and 30% continue to be part of the tax net.
Here’s a look at the goodies doled out by the then interim Finance Minister Piyush Goyal on 1 February for the taxpayers, particularly the salaried class, and how it can influence your income tax return filing.
The Rs 12,500 Rebate
From financial year 2019-2020 you can count yourself among the luckiest lot if your annual income does not exceed Rs 5 lakh; or if your net taxable income, after deducting all expenses and investments, remains at or below Rs 5 lakh.
Technically, it would be incorrect to say that no tax will be levied on income up to Rs 5 lakh. The budget 2019 enhanced the rebate amount from Rs 2,500 to Rs 12,500, an increase of flat Rs 10,000. The earlier rebate of Rs 2,500 was for an income of Rs 3.5 lakh.
Rebate is governed under Section 87A of the Income Tax Act, 1961. In simple terms, it is a tax concession given for particular income. The government returns your tax liability in the form of rebate.
Now consider this, up to Rs 2.5 lakh, 0 percent or no income tax. Five percent income tax is levied on income between Rs 2,50,001 and Rs 5 lakh. Therefore, your tax liability comes to Rs 12,500 (5% of Rs 2.5 lakh). This tax liability will not be collected as there is a rebate of equal amount.
How You Can Avail Rebate and Pay Zero Tax?
Suppose your annual income is Rs 8.5 lakh per annum, you can still arrive at a zero tax liability and file income tax return (ITR) happily. Here is how you can do it.
Consider the tax deduction limit under Section 80C of the I-T Act. Under this rule, you can claim a deduction of up to Rs 1.5 lakh. Exhaust this limit by making investments in public provident fund, equity linked mutual funds, central government specified saving schemes and other permitted instruments.
Your taxable income will come down to Rs 6 lakh if you use this limit fully. Under this rule, you can also claim deduction for the house rent you pay. But keep in mind that you will have to furnish landlord’s PAN copy if you are paying over Rs 1 lakh as house rent in a financial year.
Standard Deduction & National Pension System
Budget 2018 scrapped two key salary components — transport allowance and medical reimbursement. In their place, it introduced standard deduction of Rs 40,000, which was increased in Budget 2019 to Rs 50,000. Standard deduction is a one-time deduction which you can mention in your ITR filing. Your taxable income will come down to Rs 5.5 lakh.
Under Section 80CCD, you can claim a deduction of Rs 50,000 if you subscribe to the National Pension System (NPS). This is over and above Rs 1.5 lakh under section 80C. With this, taxable income will come down to Rs 5 lakh. Once you arrive at Rs 5 lakh don’t have to pay any tax. Remember zero tax liability does not mean you don’t need to file ITR.
Note: Tax experts say you can arrive at zero tax liability even if your annual income is over Rs 9 lakh. But this will drastically affect your lifestyle as you will have to heavily clamp down on your household budget. You will also need to divert a larger chunk of your income towards tax deductible investments.
Other Big Announcements on Personal Finance
No Tax on Notional Rent for Second Home
In Budget 2019, interim finance minister Piyush Goyal removed tax on notional rent on ‘second self-occupied home’. Notional rent is a rent assumed to be earned under Income Tax Act, 1961. From FY20, if you own a second house you will not have to pay tax on notional rent.
However, on a third house you do have to pay income tax. Yet, experts say, you cannot claim tax deduction for the outstanding loan you took for buying the second home.
Capital Gains Benefits
Section 54 of the I-T Act, 1961, rules that you can claim exemption on capital gains made on sale of residential property if you are using the proceeds to buy another residential property. Budget 2019 has made a provision under which you can now buy two houses with the proceeds. But you can do this only once in your lifetime as long as your proceeds do not exceed Rs 2 crore.
Note: Apart from these big ticket changes, the budget 2019 has raised the Tax Deducted at Source (TDS) exemption limit on interest income from bank and post office fixed deposits from Rs 10,000 to Rs 40,000. Apart from this, the TDS limit on house rent paid has also been increased from Rs 1.80 lakh to Rs 2.40 lakh.
(Ashfaque Ismail is a Mumbai-based journalist. He writes on personal finance, and current political and national affairs. You can tweet to him @ashfaqueismail. This is a personal blog and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)
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