This was a budget for the ‘masses’. The changes announced can help you pay less and save more. Here are all the details.
We all know why the Union Budget this year had a lot of sops for the salaried. Whatever the purpose, it will surely help you with your tax savings, home purchase, Fixed Deposits and gratuity. This is especially true for those who earn less than Rs. 10 lakhs a year. So, here’s how the budget will affect your money.
The Tax Cut
While the standard deduction has been increased to Rs. 50,000 from Rs. 40,000, this won’t have as much of an impact as the tax rebate. The tax rebate of Rs. 2,500 under Section 87A announced in the last Budget has been hiked to Rs. 12,500. This means that if your taxable income is Rs. 5 lakhs, you have to pay zero tax!
Now, how does this work? You have to calculate your ‘taxable’ income after all tax deductions. If this income after all possible deductions is Rs. 5 lakhs or less, you can avail the tax rebate of Rs. 12,500, making your ‘tax payable’ nil.
The Impact
This tax rebate will surely help ensure that a section of the salaried population pays no tax. However, this will depend on the individual’s annual income. So, based on your income, here are examples to understand how the tax rebate will help you.
Earn Less Than Rs. 5 lakhs?
This tax rebate will have little impact if your salary is less than Rs. 5 lakhs a year. Here’s an example.
| Details | Pre-Budget (Rs.) | Post-Budget (Rs.) |
| Gross income | 3,80,000 | 3,80,000 |
| Less: Standard Deduction | 40,000 | 50,000 |
| Taxable income | 3,40,000 | 3,30,000 |
| Tax to be paid | 2,080 | 0 |
| Less: Rebate u/s 87A | 2,080 | NA |
| Tax Payable/Saved | 0 | 0 |
Earn Between Rs.5 lakhs And Rs. 10 lakhs?
In the budget speech, our Finance Minister Piyush Goyal said “As a result (of the tax rebate), even persons having gross income up to Rs. 6.50 lakhs may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance etc.” So, you can make tax investments and avail various deductions to reduce your taxable income to Rs. 5 lakhs to get that rebate.
And then, there are the newspaper reports and financial advisors who are saying you needn’t pay tax if you earn as much as Rs. 7,75,000. Here’s an example.
| Details | Pre-Budget (Rs.) | Post-Budget (Rs.) |
| Gross income | 7,80,000 | 7,80,000 |
| Less: Standard Deduction | 40,000 | 50,000 |
| Less: Investments u/s 80C | 1,50,000 | 1,50,000 |
| Less: NPS u/s 80CCD 1(B) | 50,000 | 50,000 |
| Less: Premium u/s 80D | 25,000 | 25,000 |
| Less: Interest u/s 80TTA | 10,000 | 10,000 |
| Taxable income | 5,05,000 | 4,95,000 |
| Tax to be paid | 14,040 | 0 |
| Tax saved | NA | 14,040 |
Great! But we say you can pay zero taxes even if you earn as much as Rs. 11,65,000. We are serious! Keep reading for the details.
Additional Reading: How To Correct Mistakes In Your Income Tax Return (ITR)
Earn More Than Rs. 10 lakhs?
Here’s an example of how you can get full tax rebate. We have assumed that you earn Rs. 10,45,000 and that you avail maximum deductions under different sections of the Income Tax Act, including Section 80E which is for Education Loan.
| Details | Pre-Budget (Rs.) | Post-Budget (Rs.) |
| Gross income | 10,45,000 | 10,45,000 |
| Less: Standard Deduction | 40,000 | 50,000 |
| Less: Investments u/s 80C | 1,50,000 | 1,50,000 |
| Less: NPS u/s 80CCD 1(B) | 50,000 | 50,000 |
| Less: Premium u/s 80D | 55,000 | 55,000 |
| Less: Interest u/s 80TTA | 10,000 | 10,000 |
| Less: Interest on Home Loan u/s 24 | 2,00,000 | 2,00,000 |
| Less: Education Loan u/s 80E | 30,000 | 30,000 |
| Taxable income | 5,10,000 | 5,00,000 |
| Tax to be paid | 15,080 | 0 |
| Tax saved | NA | 15,080 |
Wait! But we had mentioned Rs. 11.65 lakhs as the maximum income for which you could get
The TDS Increase
The Tax Deducted at Source (TDS) for post- office and bank deposits have been increased to Rs. 40,000 from Rs. 10,000.
The Impact
If you earn an interest income of up to Rs. 40,000 on your deposits, you needn’t worry about submitting Form 15G to avoid TDS.
Additional Reading: What You Should Know About The New Income Tax Return Forms
The Gratuity Hike
The gratuity limit has now been increased from Rs. 10 lakhs to Rs. 20 lakhs. Gratuity is payable on retirement or resignation.
The Impact
This will help those who earn a higher salary to get appropriate gratuity and will ensure that employees don’t switch jobs often. For example, an employee with 20 years of service with a monthly salary of Rs. 1.2 lakhs can get the gratuity that they deserve. How? Earlier, the gratuity would have been limited to Rs. 10 lakhs. Now, they can get the actual gratuity which is Rs. 13.84 lakhs (15/26 x 1,20,000 x 20 years).
The Capital Gains Exemption
Here’s the background. When you sell a property, you have to pay capital gains tax. However, you can claim exemption under section 54 of the Income Tax Act if you invest your gains in another residential property. But you could invest in only one residential property. The Union Budget 2019 says you will be allowed to invest in 2 residential properties. The maximum capital gains that you can invest will be Rs. 2 crores. However, this can be availed only once in a lifetime.
The Impact
This will help all those who don’t want to invest all their gains in a single property. For example, if earlier you had made capital gains of Rs. 2 crore, you could buy only one residential property. Now, you can split those capital gains and buy 2 properties. For instance, you could buy two properties worth Rs. 1 crore each or one property worth Rs. 50 lakhs and another for Rs. 1.50 crores. The choice is yours!
Additional Reading: Here Are Some Unusual Ways Salaried Individuals Can Save Income Tax
The Let-Out Property Concession
At present, you need to pay income tax on the notional rent for your self-occupied property if you have 2 properties and both are self-occupied. Why? Because you can declare only one property as self-occupied and the other will be ‘deemed to be let-out’. So, you have to calculate notional rent for this ‘deemed to be let-out’ property and pay taxes. However, thanks to this year’s budget, you can declare 2 properties as self—occupied. So, there is no need to calculate notional rent or pay tax on that rent.
The Impact
This will help all those who have properties that are not let-out and have taken only one Home Loan. Let us consider an example:
Suppose your notional rent for the year is Rs. 2,00,000 and municipal taxes are Rs. 30,000. Your property’s net annual value will be Rs. 1,70,000. Your income from house property will be Rs. 1,19,000 (net annual value minus 30% of the net annual value which is Rs. 1.7 lakhs minus Rs. 51,000). So, you would have to pay tax as per your tax slab, which will come to Rs. 37,128 if you are in the highest tax bracket. You can save this amount now by declaring your property as self-occupied.
Note that if you have Home Loans for both properties, you may not be able to carry forward your loss from house property (interest on Home Loan) if you declare both your properties as self-occupied.
So, make use of all those deductions and concessions when you file your taxes in 2020. Yet to plan your taxes for this year? There are plenty of tax-saver Fixed Deposits and ELSS Mutual Funds waiting for you!