Major Expectations of Income Tax Changes in Budget 2019-20

Income Tax Changes in Budget 2019-20

The Modi government in its second term is set to announce the first budget on July 5 under the supervision of new Union Finance Minister Nirmala Sitharaman. Although the Modi 1.0 government has already proposed some relief in interim budget back in February this year. Yet, we expect some addition in suggested sops for individuals on the income tax front in upcoming budgets on Friday but not much. If goes by many analysts, the budget would turn out as pro-growth and tax sops would work as a stimulus to boost economy running slowly this year. "Many benefits for individual taxpayers were already introduced in the interim budget. Not much can be expected on that front in the coming budget exercise," says Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates.

1) Extended Income Tax Exemption Limit: The income tax exemption limit for an individual is expected to be extended in the impending budget 2019 from current INR 2.5 lakh to INR 3 lakh. With this, the taxpayers would be able to save INR 2,500 more in the amount paid as the income tax. The higher income tax exemption limit in the budget on July 5 is being expected due to the reason that the country has already witnessed the same in 2014 when the NDA dispensation won an overwhelming response from the country in the Lok Sabha elections. Mr. Arun Jaitely, Union Finance Minister of that time increased the tax exemption limit in its first union budget from INR 2 lakh to INR 2.5 lakh.

2) Added Tax Exemption on NPS withdrawal: The tax exemption limit for the exclusion of lump sum withdrawal amount from NPS was increased by 60 percent from the ruling government in December last year. Due to which, no income tax was levied on the entire withdrawal amount.

But as per the present scenario, from 60 percent of the accumulated corpus withdrawn by NPS subscribers during retirement or before age 60, 40% is tax exempt and the remaining 20% is taxable. On the other hand, the left out 40 percent used for the purchase of an annuity is already tax exempt.

If the government will include such change in the budget 2018-19, the NPS will be blessed with exempt, exempt and exempt or EEE status, which signifies no tax on the PPF (public provident fund) or EPF (employee provident fund) at any phase including investment, accumulation, and withdrawal as well.

Till now, NPS changes are not observed, but the announcement made by the Cabinet earlier indicates their inclusion in the approaching budget on July 5.

"NPS is an excellent product in many ways and we hope the govt will continue to reform and popularise it," he adds. "One way could be to increase the? 50,000 deductions under section 80CCD(1B) to ?1 lakh."

3) Increased Section 80C Deduction limit: The threshold limit of tax levied on savings and investments under the section 80C of the Income Tax Law, is also under consideration to get extended by the Finance Ministry. Currently, the limit of savings and investment on which no tax will be levied under section 50C is INR 1.5 lakh. According to Nitin Baijal, director at Deloitte Haskins and Sells LLP, the deduction under Section 80D can be increased from current INR 25,000 to INR 35,000 so that rising inflation level and growing medical expenses can easily be compensated and an affordable and easily accessible medical treatment can be provided to all category of patients.

4) Tax-Free Bonds to Introduce Again: There are a lot of chances that the ruling government could bring tax-free bonds again in lieu of generating capital via government bodies for infrastructure projects. These bonds are tax-free i.e no tax will be calculated on the earned interest on them. Also, these tax-free bonds get matured in a typically long duration of ten years or more. Considering the government focus on upcoming road projects, the National Highway Authority of India (NHAI) is expected to be an immediate beneficiary.

5) Hiked LTCG Limit: According to the Poorva Prakash, senior director at Deloitte Haskins and Sells LLP, the Modi 2.0 government could focus on increasing the threshold limit of LTCG (long-term capital gains) on the sale of listed equity shares and units of equity-oriented mutual funds, which is currently limited to INR 1 lakh for each financial year. In the Finance Act, 2018, changes were introduced to the capital gains tax system which mandates tax collection on the long-term capital gains extended over INR 1 lakh for the sale of listed equity shares and units of equity-oriented mutual funds. Earlier than this, the LTCG were fully exempted. The changes in the Finance Act, 2018 came into effect from 1 February 2019 and tax to be calculated on capital gains collected up to January 31, 2018.

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