It’s that time of the year when the country is all ears for the government’s budget announcement. On this day, the government reveals the income earned and the expenses incurred during the year and also reveals the income & expense estimations for the next year. But Budget 2019 was slightly different from the previous budgets…
Since this year is an election year and a new government will be elected, Budget 2019 wasn’t a ‘Full Budget’ but it was an ‘Interim Budget’.
What is an Interim Budget?
An interim budget is a temporary budget used during the transition time between the old government and the newly elected government.
Now obviously if the government’s plans are very attractive, people will be incentivised to vote them back to power. So from a political standpoint, all that was announced in Budget 2019 was very crucial and it can make or break the prevailing government’s chances at winning elections.
So, how does Budget 2019 affect you?
- If your income is less than Rs.5, 00,000, no tax for you!
- For all those earning a salary, you can now claim a tax deduction of Rs.50,000
- Own a second home? You no longer need to pay tax on notional rent from it!
- And selling a home? Just reinvest the profits in 2 other properties and you don’t need to pay any taxes.
- Who said FD’s are out of style? The government just brought them back with a change in the TDS rules.
If your income is less than Rs.5, 00,000, no tax for you
- Those whose annual income is less than Rs. 5,00,000 will get a full tax rebate (meaning you’ll get a refund of the taxes you’ve paid, once you file your income tax returns). But if your annual income is over Rs. 5,00,000, there are ways in which you can bring it down.
- By simply investing in tax saving options such as PPFs, NSCs, FDs etc. However, the catch here is that you can only deduct up to Rs. 1,50,000 invested in all these options. So any amount exceeding Rs. 1,50,000 will not be eligible for tax deduction purposes. So, if you do the math correctly, it means only those earning up to Rs. 6,50,000 can invest in tax saving investments to bring down their income to Rs. 5,00,000 and get a full tax rebate.
- And there are certain other deductions which if claimed by those earning an annual income of 8-9 lakhs can bring down their annual income to Rs. 5,00,000 thus making them eligible for the full tax rebate.
- Hopefully, this move will encourage more people to file their taxes because only then can they claim a rebate.All this might sound slightly complicated and too taxing! So, it’s best to consult your CA friend before you go ahead and make any big investment decisions. They will be the right person to help you out and escape taxes.
For all those earning a salary, you can now claim a tax deduction of Rs.50,000
- Before last year’s budget, if salaried employees showed medical bills of up to Rs. 19,200 and travel bills of up to Rs. 15,000 in a year to their employer, they could deduct that amount (Rs.19200 + Rs. 15,000 = Rs. 34,200) from their taxable income and reduce the taxes payable by them.
- But last year the government introduced a standard deduction of Rs. 40,000 for every employee replacing the previous tax deduction of Rs. 19,200 on medical and Rs. 15,000 on travel. This was done to reduce paperwork and eliminate the need for providing proof to claim tax benefits.
- This year the government has raised this standard deduction by Rs. 10,000, thus allowing salaried employees and now even pensioners to deduct Rs. 50,000 from their taxable income.
Own a second home? You no longer need to pay tax on rental income from it
- Currently, if an individual owns 2 homes, they’re supposed to pay tax on rent collected from the second home. Even if the second home is empty and not rented out they’re supposed to pay ‘notional’ rent on it. This notional rent is calculated based on various factors and you need to consult a CA to help you calculate it.
- But this year the government has removed this tax on ‘notional’ rent to provide relief to lots of upper-middle-class families who own two homes. This move will hope to encourage individuals to invest in real estate and increase the demand for houses.
And selling a home? Just reinvest the profits in other properties and you don't need to pay taxes
- Currently, when an individual sells a house after 2 years and makes profits (known as long term capital gains) they can re-invest these profits by buying another home and avoid paying any tax on the gains.
- This budget the government announced that one can now reinvest these profits by buying two homes and avoid paying any tax on the gains. Note- This can only be used by those, whose long term capital gains from selling a home are not more than Rs. 2 crores and they can claim this tax benefit only once in a lifetime.
- Apart from buying homes, there are also other investment schemes that an individual can invest in to avoid paying taxes on their gains. Want to know more in detail about them, click here.
- Hopefully, this move will benefit a lot of families who wish to sell their home and buy 2 smaller homes for their kids.
Who said FD’s are out of style? The government just brought them back with a change in the TDS rules
- Earlier if interest earned on bank and post office deposits exceeded Rs.10,000 tax would be deducted from it and then you’ll receive your interest. (This tax is known as TDS- Tax deducted at source).
- But in this budget, the government proposed to increase this limit from Rs. 10,000 to Rs. 40,000. This means only if interest from these deposits exceed Rs.40,000 TDS will be deducted.
- This move hopes to help those who earlier had to claim a refund of the TDS when the limit was Rs 10,000.
Note – Just because TDS isn’t deducted doesn’t mean you’re not supposed to pay tax on it. You have to include it in your total income and calculate tax as per the tax slabs. If your total income is below the exemption limit Rs. 2,50,000 you won’t have to pay tax on it.
That was a wrap on all budget-related announcements that affect your personal finances. If you still have any doubts just comment below and we will help you out.