The interim budget was presented on 1st Feb 2019 and has already receded to the background in most conversations. Now that the dust has settled as well as clarity obtained on a few new proposals, it is a good time for us to look at and quickly recap how this year’s interim budget weighs upon our personal finances.
The one thing which is usually on every salaried person’s wish list from the budget year after year is tax breaks, and this time we did see some welcome changes. A lot of positive moves for those in lowest tax bracket and some for the mid and high-income category too.
No tax if taxable income below Rs. 5 Lakhs, standard deduction raised from Rs. 40,000 to Rs. 50,000
Rebate of Rs. 12,500 has been given to people with taxable salary of upto 5 lakhs, thereby ensuring that people belonging to this group will pay zero tax. Note that if your taxable income is higher than Rs. 5 lakhs you will continue to pay 5% tax for income from Rs. 2.5 lakhs to Rs. 5 lakhs.
The key word here is taxable income, meaning income after considering all deductions. This means that people with gross incomes higher than Rs 5 lakh, in fact upto Rs 10.35 lakh can end up paying zero tax, assuming the person has made maximum investments basis eligibility.
The attached table clearly illustrates how a person with gross income of 10.35 lakhs will still avail of the rebate and end up paying no tax. This is for someone with no HRA, donations or education loan, a person having any of the above will end up paying no tax on even higher incomes than Rs 10.35 lakh. The fact that a person earning close to Rs 90,000 a month can end up paying zero tax if she plans her investments is a huge positive.
The standard deduction which was at Rs 40,000 has now been increased to Rs 50,000. This benefit is available to people across all income slabs and not just < Rs 5 lakh pa.
Limit for deduction of tax at source (TDS) for interest on FD has been raised from Rs 10,000 pa to Rs. 40000 pa
This will come as a relief to many pensioners as well as people having FDs as a contingency asset. With lower limits of TDS, one needed to fill forms and submit it on time to avail of non-deduction of TDS. This will be a welcome change making the process hassle free.
No tax on second self-occupied house on notional rent
People having two houses were required to pay tax on notional rent on the second house, even when they choose not to rent out their premises. This is a very thoughtful benefit and has been extended given the fact that the number of working couples who are forced to work in different cities to pursue their careers and build their lives is increasing. Hence going forward, people who have two houses due to various reasons can now breathe a sigh of relief.
You can reinvest your long-term capital gains in two houses instead of one.
If long term capital gains accrued on sale of a house does not exceed Rs. 2 crores, then you can avail capital gains re-investment benefit across two residential houses instead of one under section 54. This benefit is available to an individual only once in a lifetime. This again is a thoughtful benefit extended, keeping in mind inter-generational purchase of houses, due to greater nuclearization of families.
However if the capital gains exceed Rs 2 crore than old rules will still apply and to avail of the benefit you will have to invest in 1 residential house.
In our opinion though, in case one is not obliged to re-purchase a house (to meet familial needs), it will make better sense to invest capital gains in Sect 54 EC bonds for a period of 5 years rather than locking up capital in in low-yielding real estate. Post the lock-in period, one can look at financial assets which have potential to make much higher returns.
Pension for unorganised sector workers
In our opinion one of the highlights of the budget was the pension scheme announced for unorganised sector workers. We all see our maids, drivers and numerous other people struggling to make ends meet and retirement is definitely not on their priority. Pradhan Mantri Shram Yogi Maandhan Yojana promises a minimum pension of INR 3000 pm at age 60 on minimum monthly contributions. A 29 year old, will need to deposit INR 100 a month to avail of this pension. This scheme now provides a much needed social security net for the huge number of unorganized sector workers across the country and each one of us should ensure that our safety nets ie. our domestic helps avail of this scheme so that they too can have their own safety nets.
Finwise is a personal finance solutions firm that helps both residents and NRIs plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at firstname.lastname@example.org or +91 9870702277/9820818007.