Contrary to expectations, especially those of middle-class tax payers, Union finance minister Nirmala Sitharaman made no changes in the income tax (I-T) slabs while increasing the taxes for those with taxable income of over Rs2 crore.
Some tinkering with securities transaction tax (STT) and a relief on purchase of electric vehicles and affordable homes is more or less the only relief for middle-class Indians. This has triggered several memes and jokes on social media by disappointed taxpayers, who were expecting the finance minister to do something more than merely thank them for their contribution.
Those with taxable income of Rs2 crore and Rs5 crore have been dealt a blow with a hike in surcharge, increasing their effective tax rate by about 3% and 7%, respectively.
“In view of rising income levels, those in the highest income bracket need to contribute more to the Nation’s development,” the finance minister said, while thanking taxpayers for playing a major role in nation building.
Referring to several measures taken in the past to alleviate the tax burden on small and medium income earners, Ms Sitharaman said, “Those having annual income of up to Rs5 lakh are not required to pay any income tax.”
This includes self-employed as well as small traders, salary earners, and senior citizens, she added.
Relief in Levy of Securities Transaction Tax
In her speech, the finance minister proposed a relief in levy of STT by restricting it only to the difference between settlement and strike price in case of exercise of options. However, since the budget was widely expected to scrap the STT, this meagre relief has disappointed investors.
Additional Deduction of Interest for Affordable Housing
In order to provide a further impetus to affordable housing, Ms Sitharaman decided to allow an additional deduction of up to Rs1.50 lakh for interest paid on loans borrowed up to 31 March 2020 for buying an affordable house valued up to Rs45 lakh.
This means, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs3.5 lakh. This will translate into a benefit of around Rs7 lakh to the middle-class home-buyers over their loan repayment tenure of 15 years.
For realisation of the goal of ‘housing for all’ and affordable housing, a tax holiday has already been provided on the profits earned by developers of affordable housing. Also, interest paid on housing loans is allowed as a deduction to the extent of Rs2 lakh in respect of self-occupied property.
I-T Deductions for Buying Electric Vehicles
To encourage the switch to electric vehicles and to make them more affordable to consumers, the government will provide additional income tax deduction of Rs1.5 lakh on the interest paid on loans taken to purchase electric vehicles.
This amounts to a benefit of around Rs2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle.
Considering India’s large consumer base, the finance minister stated, “We aim to leapfrog and envision India as a global hub of manufacturing of electric vehicles. Inclusion of solar storage batteries and charging infrastructure in the above scheme will boost our efforts.”
The government has already moved goods and services tax (GST) council to reduce GST rate on electric vehicles to 5% from 12%, she added.
Mandatory Filing of Return on Spending Rs2 Lakh on Foreign Travel, Rs1 Lakh on Electricity
Budget 2019-20 proposes to make it mandatory to file tax returns by persons, who have deposited more than Rs1 crore in a current account in a given year, or who have spent more than Rs2 lakh on foreign travel, or more than Rs1 lakh on their electricity bill in a year in order to trap possible tax-evaders.
It is also proposed that a person whose income drops to lower than maximum amount not chargeable to tax due, shall also be required to furnish a return to claim of rollover benefit of capital gains.
Level Playing Field for Non-Banking Financial Companies (NBFCs)
Recognising the increasingly important role of NBFCs in India’s financial system and to provide a level playing field, the finance minister has proposed to tax interest on bad or doubtful debts in the year in which it is actually received.
Presently, this is allowed for scheduled banks, public financial institutions, state financial corporations, state industrial investment corporations, cooperative banks and certain public companies like housing finance companies.