Union Budget: What It Has For A Salaried Person
The past whole week was abuzz with various expectations from Union Budget, issues ranging from farmers income to relaxation for middle class, etc. and whether it is going to be a populist one considering the upcoming election or not. Broadly, the budget impacts an individual in two ways – at a market level and at the individual level. Most of the mailers, notes, articles you would read, would be concentrated on general issues.
Income Tax Proposals
Tax rebate for individual earning upto Rs. 5 Lakh. (Neutral)(Positive)
Individual taxpayers having taxable annual income up to Rs. 5 Lakh will get full tax rebate (Rs. 12,500) and therefore will not be required to pay any income tax. Considering Sec 80 C (Rs. 1.50 Lakh), Sec 80CCD (Rs. 50,000), Sec 80D (Mediclaim premium of Rs. 25,000) and the standard deduction (Rs. 50,000), an individual may not have to pay any tax with an annual salary as high as Rs. 7.75 Lakh.
However, even post considering all deductions, if the taxable income is above Rs. 5 Lakh, this rebate (Rs. 12,500) will not be applicable and will be taxed as per slab. For example, if the net income (post deductions) is Rs. 5.50 Lakh, the tax payable would be 22,500 (i.e. 10% on Rs. 2.50 Lakh and 20% on Rs. 50,000).
Change in the standard deduction for salaried class. (Positive)
For salaried persons, Standard Deduction is being raised from the current Rs. 40,000 to Rs. 50,000. Hence, net taxable income would reduce.
No Income tax on notional rent on a second self-occupied house. (Positive)
In the existing structure, if an individual owns two self-occupied properties, a notional rent is assumed on any one of the properties and such amount is added to the income and taxed as per the slab. After this interim budget, an individual will not have to pay tax on such notional rent from self-occupied property.
TDS threshold on interest earned on bank/post office deposits is being raised from Rs. 10,000 to Rs. 40,000.(Neutral)
No major benefit. Only benefit is that the TDS will not be applicable up-to an interest income of Rs. 40,000. Interest will still be taxed as per the slab rate.
TDS threshold for deduction of tax on rent is proposed to be increased from Rs. 1,80,000 to Rs. 2,40,000 for providing relief to small taxpayers. (Neutral)
No major benefit. Only benefit is that the TDS will not be applicable up to rental of Rs. 240,000 instead of existing Rs. 1,80,000. Rental income will still be taxed as per the slab rate.
Capital Gains
Changes under section 54 of the Income Tax Act for Capital Gains. (Positive)
In the existing structure under section 54, an individual could use the sale proceeds from one house to buy another house in order to avail capital gains exemption. Now, an individual can buy two houses (instead of one) but with a maximum capital gains of Rs. 2 Crore. This benefit can be availed once in a life time.
Every year when the FM presents the Union Budget, there are hopes and fears of the changes one needs to make in their investment and savings portfolio to get tax benefits. Events like the Budget remain mere events when seen from a long term perspective.
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