Interim Budget 2019 - Highlights for Income Tax

The highlights of Interim Budget 2019 presented by the Finance minister Mr. Piyush Goyal on 01st Feb. 2019 in the context of Income Tax or Direct Tax Provisions are enumerated. The Interim Budget 2019 amended certain provisions of income tax law which are mainly aimed at giving benefit to middle-class taxpayers of the country are highlighted. Important changes were introduced in the Finance Bill, 2019 which received the assent of President of India on 21st Feb. 2019 and become a Finance Act, 2019 with effect from 01st April 2019. The changes in the provisions amended in the Act are applicable from 01.04.2019 which covers FY 2019-20 or Assessment Year (AY) 2020-21.

While presenting the Interim Budget 2019, the Finance Minister highlighted the various tax benefits that the current government has given to the taxpayers in the last four and a half years since assuming power in 2014. He also announced various tax benefits for the FY 2019-20 mainly which are related to the common man or middle-class of the country. It is noteworthy that the Interim Budget was presented just before two months prior to the 2019 general elections instead of following the tradition of the 'vote on account'. Thus the Interim Budget contained bouquet of benefits which are highlighted in the forthcoming paras.

Let's start with the highlights of Budget Speech on Direct Taxes which the Finance Minister presented before the Parliament.

Tax Collection and Return filings: The tax collections increased significantly from Rs. 6.38 Lakh crore in 2013-14 to almost Rs. 12 lakh crore this year. The number of returns filed has also increased from 3.79 crore to 6.85 crore showing 80% growth in the tax base.
Online income tax proceedings: Last year, 99.54% of the income-tax returns were accepted as they were filed. All returns will be processed in twenty-four hours and refunds issued simultaneously. Within the next two years, almost all verification and assessment of returns selected for scrutiny will be done electronically through the anonymized back office, manned by tax experts and officials, without any personal interface between taxpayers and tax officers.
Tax benefits given to middle-class taxpayers since 2014: We increased the basic exemption limit from Rs. 2 lakh to Rs. 2.5 Lakh and gave tax rebate so that no tax was payable by persons having income up to Rs. 3 lakh. We also reduced the tax rate from 10% to 5% for the tax slab of Rs. 2.5 lakh to Rs. 5 lakh and introduced Standard Deduction of Rs. 40,000 for the salaried class. Deduction of savings under section 80C was increased from Rs. 1 lakh to Rs. 1.5 lakh. Deduction of interest for self-occupied house property was raised from Rs. 1.5 lakh to Rs. 2 lakh.
Benefits and incentives to small businesses and start-ups: Overall compliance processes were simplified. Threshold limit for presumptive taxation of business was raised from Rs. 1 crore to Rs. 2 crore. The benefit of presumptive taxation was extended for the first time to small professionals fixing threshold limit at Rs. 50 lakh. In order to promote a less cash economy, the presumptive profit rate has been reduced from 8% to 6%. The tax rate for companies with turnover of up to Rs. 250 crore, covering almost 99% of the companies, was reduced to 25% which was also applicable to new manufacturing companies without any turnover limits.

Highlights of Direct Tax proposals in the Interim Budget 2019 for FY 2019-20

The Finance Minister informed the Parliament that because of major tax reforms undertaken by us during the last four and half years, both tax collections, as well as the tax base, have shown a significant increase and we have made progress towards achieving a moderate taxation–high compliance regime. It is, therefore, just and fair that some benefits from the tax reforms must also be passed on to the middle-class taxpayers. Keeping this in view, I propose to further reduce the tax burden on such taxpayers. Though as per convention, the main tax proposals will be presented in the regular budget, small taxpayers especially middle class, salary earners, pensioners, and senior citizens need certainty in their minds at the beginning of the year about their taxes. Therefore, proposals, particularly relating to such class of persons should not wait. Hence, while for the present the existing rates of income tax will continue for FY 2019-20, I propose the following:

Rebate of Rs. 12,500 from tax: Individual taxpayers having a taxable annual income up to Rs. 5 lakhs will get full tax rebate and therefore will not be required to pay any income tax. As a result, even persons having gross income up to Rs. 6.50 lakhs may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance, etc. In fact, with additional deductions such as interest on home loan up to Rs. 2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance, medical expenditure on senior citizens, etc, persons having even higher income will not have to pay any tax. This will provide a tax benefit of Rs. 18,500 crore to an estimated 3 crore middle-class taxpayers comprising self-employed, small business, small traders, salary earners, pensioners, and senior citizens.
Raising the limit for Standard Deduction: For salaried persons, Standard Deduction is being raised from the current Rs. 40,000 to Rs. 50,000. This will provide additional tax benefit of Rs. 4,700 crore to more than 3 crore salary earners and pensioners.
Two self-occupied house property without any notional tax: Currently, income tax on notional rent is payable if one has more than one self-occupied house. Considering the difficulty of the middle class having to maintain families at two locations on account of their job, children’s education, care of parents, etc. I am proposing to exempt levy of income tax on notional rent on a second self-occupied house.
Increase in TDS threshold limit for interest and rent: TDS threshold on interest earned on bank/post office deposits is being raised from Rs. 10,000 to Rs. 40,000. This will benefit small depositors and non-working spouses. Further, the 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.
Increase in exemption limit under section 54: The benefit of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses for a tax payer having capital gains up to Rs. 2 crore. This benefit can be availed once in a life time.
Benefits under section 80-IBA extended: For making more homes available under affordable housing, the benefits under Section 80-IBA of the Income Tax Act is being extended for one more year, i.e. to the housing projects approved till 31st March, 2020.
Holding period of unsold inventory of real estate for imposing tax on notional rent extended: Also, for giving impetus to the real estate sector, I have proposed to extend the period of exemption from levy of tax on notional rent, on unsold inventories, from one year to two years, from the end of the year in which the project is completed.

Let us now analyze the amendments made in the Income Tax Act, 1961 vide Finance Bill, 2019 as per the budget announcements and other amendments other than those announced in the Budget Speech.

The objective of the Finance Bill, 2019 states to continue the existing rates of income tax for the financial year 2019-20. Hence there is no change in rates of income-tax for individual and other assessees. The rates of taxes for FY 2018-19 shall continue for FY 2019-20 without any modification.

Income tax slab and tax rates for Individual assessees for FY 2019-20 or AY 2020-21 as per Finance Bill, 2019 is given below:

There is no change in the tax rate and tax slabs for the FY 2019-20 compared to preceding financial year 2018-19. However, rebate u/s 87A of Rs. 12,500 is allowed for a Total Income up to Rs. 5,00,000.

The income tax slab and income tax rates for the Financial Year 2019-20 or Assessment Year 2020-21 for various categories of taxpayers is given below-

Table-1

Category of Taxpayer	Individual/HUF/AOP/BOI/Any other Artificial Juridical Person
Residential Status	Resident and Non-Resident
Age of the Taxpayer	Under 60 years of age

Total Income	Income-Tax Rate
Up to Rs. 2,50,000	Nil
Rs. 2,50,001 to Rs. 5,00,000	5%
Rs. 5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	30%

Table-2

Category of Taxpayer	Individual (Senior Citizen)
Residential Status	Resident
Age of the Taxpayer	Above 60 years of age

Total Income	Income-Tax Rate
Up to Rs. 3,00,000	Nil
Rs. 3,00,001 to Rs. 5,00,000	5%
Rs. 5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	30%

Table-3

Category of Taxpayer	Individual (Super Senior Citizen)
Residential Status	Resident
Age of the Taxpayer	Above 80 years of age

Total Income	Income-Tax Rate
Up to Rs. 5,00,000	Nil
Rs. 5,00,001 to Rs. 10,00,000	20%
Above Rs. 10,00,000	30%

Important:
Surcharge on Income-tax for Individuals:	In all cases covering Table-1/2/3 above
Where Total Income is up to Rs. 50,00,000	Nil
Where Total Income exceeds Rs. 50,00,000	10%
Where Total Income exceeds Rs. 1,00,00,000	15%


Health & Education Cess on Income-tax and Surcharge for Individuals:	In all cases covering Table-1/2/3 above
Health & Education Cess	4%

Note: Rebate u/s 87A is allowed on tax liability to a resident Individual if Total Income does not exceed Rs. 5,00,000. The maximum amount of rebate is Rs. 12,500. This rebate is not allowed to a non-resident.

Marginal Relief on Surcharge

Where Total Income exceeds Rs. 50,00,000

Total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of Rs. 50,00,000 by more than the amount of income that exceeds Rs. 50,00,000.

Where Total Income exceeds Rs. 1,00,00,000

Total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore.

Table-4

Category of Taxpayer	Domestic Company
Residential Status	Resident

Particulars	Income-Tax Rate
Total turnover or gross receipts during the previous year 2017-18 is up to Rs. 250 Crore	25%
Other domestic companies	30%

Table-5

Category of Taxpayer	Foreign Company
Residential Status	Non-Resident

Particulars	Income-Tax Rate
Tax rate for foreign companies	40%

Important:
Surcharge on Income-tax for Companies:	Domestic Company	Foreign Company
Total Income is up to Rs. 1 crore	Nil	Nil
Total Income is Rs. 1 crore to Rs. 10 crore	7%	2%
Total Income exceeds Rs. 10 crore	12%	5%


Health & Education Cess on Income-tax and Surcharge for Companies:	In all cases covering Table-4 & 5 above
Health & Education Cess	4%

Marginal Relief on Surcharge

Where Total Income is Rs. 1 crore to Rs. 10 crore

Where Total Income exceeds Rs. 10 crore

Total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of Rs. 10 crore by more than the amount of income that exceeds Rs. 10 crore.

Table-6

Category of Taxpayer	Partnership Firms and LLP
Residential Status	Resident

Particulars	Income-Tax Rate
Tax rate for Partnership firms & LLP	30%

Important:
Surcharge on Income-tax for Partnership Firms & LLP:	In all cases covering Table-6
Where Total Income exceeds Rs. 1,00,00,000	12%


Health & Education Cess on Income-tax and Surcharge for Partnership Firms & LLP:	In all cases covering Table-6
Health & Education Cess	4%

Marginal Relief on Surcharge

Where Total Income exceeds Rs. 1,00,00,000

Table-7

Category of Taxpayer	Co-operative Society
Residential Status	Resident

Total Income	Income-Tax Rate
Up to Rs. 10,000	10%
Rs. 10,001 to Rs. 20,000	20%
Above Rs. 20,000	30%

Important:
Surcharge on Income-tax for Co-operative Society:	Cases covering Table-7
Where Total Income exceeds Rs. 1,00,00,000	12%


Health & Education Cess on Income-tax and Surcharge for Co-operative Society:	Cases covering Table-7
Health & Education Cess	4%

Marginal Relief on Surcharge

Where Total Income exceeds Rs. 1,00,00,000

Table-8

Category of Taxpayer	Local Authority
Residential Status	Resident

Total Income	Income-Tax Rate
Tax rate for Local Authority	30%

Important:
Surcharge on Income-tax for Local Authority:	Cases covering Table-8
Where Total Income exceeds Rs. 1,00,00,000	12%


Health & Education Cess on Income-tax and Surcharge for Local Authority:	Cases covering Table-8
Health & Education Cess	4%

Marginal Relief on Surcharge

Where Total Income exceeds Rs. 1,00,00,000

Amendment of Section 16:

This amendment is related to Standard Deduction under 'Income from Salary'.

The Budget 2018 reintroduced the Standard Deduction for salaried individuals and pensioners. Standard Deduction allowed from income from salary is lower of -

Amount of salary income, or

Rs. 40,000.

The maximum amount of limit for Standard Deduction is Rs. 40,000.

This limit of Standard Deduction has been increased to Rs. 50,000 with effect from FY 2019-20 or AY 2020-21.

For this purpose, an amendment is carried on in section 16 in the following manner-

In section 16 of the Income-tax Act, 1961 (hereafter in this Chapter referred to as the Income-tax Act), in clause (ia) [as inserted by section 7 of the Finance Act, 2018], for the words “forty thousand”, the words “fifty thousand” shall be substituted with effect from the 1st day of April, 2020.

Prior to amendment, section 16(ia) reads as follows-

(ia) a deduction of forty thousand rupees or the amount of the salary, whichever is less;

which after the amendment will read as follows-

(ia) a deduction of fifty thousand rupees or the amount of the salary, whichever is less;

Effect of amendment: The amendment in the Finance Bill, 2019 will enhance the Standard Deduction under section 16(ia) to Rs. 50,000 from AY 2020-21 or FY 2019-20.

Read detailed analysis on Standard Deduction in Income Tax

Amendment of Section 23:

This amendment is related to provisions related to deeming income from house property if a person owns more than one house property.

The present law provides that if a person owns more than one house and both the houses are self-occupied then one house property shall be considered as self-occupied house property whose annual value shall be taken as 'Nil' and the other house property shall be deemed to be let out for the purpose of income-tax. The choice of treating anyone house property as deemed to be let-out rests with the assessee. That is, the owner has the option to choose any one house property as self-occupied and the other one as deemed to be let-out. The annual value of the deemed to be let out house property is determined on notional rent and thus increases the income of the assessee with the notional income although the assessee is not earning any income actually.

This limit of one self-occupied house property has been increased to two house property with effect from 1st April 2019. It means one can now own two self-occupied houses without any notional tax implications.

For this purpose, an amendment is carried on in section 23 in the following manner-

In section 23 of the Income-tax Act, with effect from the 1st day of April, 2020,––(a) in sub-section (4),––

(i) in the opening portion, for the words “one house”, the words “two houses” shall be substituted;

(ii) in clause (a), for the word “one”, the word “two” shall be substituted;

(iii) in clause (b), for the words “other than the house”, the words “other than the house or houses” shall be substituted;

(b) in sub-section (5), for the words “one year”, the words “two years” shall be substituted.

Prior to amendment, section 23(4) and section 23(5) reads as follows-

(4) Where the property referred to in sub-section (2) consists of more than one house—
(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let.

(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.

which after the amendment will read as follows-

(4) Where the property referred to in sub-section (2) consists of more than two houses—

(a) the provisions of that sub-section shall apply only in respect of two of such houses, which the assessee may, at his option, specify in this behalf;

(b) the annual value of the house or houses, other than the house or houses in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let.

(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to two year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.

Effect of amendment: The amendment in the Finance Bill, 2019 is aimed to provide relief from notional taxation of owning two house properties under section 23(4) from AY 2020-21 or FY 2019-20.

Further, relief of an additional one year is also given to builders of flats, etc from taxation of unsold inventories of flats from the date of completion. From FY 2019-20 or AY 2020-21, the annual value of unsold inventories of flats, etc. shall be taxed on notional basis after two years from the date of completion of the flats, etc. Earlier, the inventories were taxed on a notional basis after one year from the date of completion.

A consequential amendment is carried on in section 24 for providing the benefit of the deduction for interest paid on home loan for two houses in the following manner-

In section 24 of the Income-tax Act, with effect from the 1st day of April, 2020,––

(a) in the first proviso, after the words “the amount of deduction”, the words “or, as the case may be, the aggregate of the amounts of deduction” shall be inserted;
(b) in the second proviso, after the words “the amount of deduction”, the words “or, as the case may be, the aggregate of the amounts of deduction” shall be inserted;
(c) after the Explanation to the third proviso, the following proviso shall be inserted, namely:––

“Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.”.

Prior to amendment, section 24(b) (all the three amended provisos are under this clause of the section) reads as follows-

S.24(b) Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:
Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :
Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed two lakh rupees.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:
Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
Explanation.—For the purposes of this proviso, the expression "new loan" means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.

which after the amendment will read as follows-

S.24(b) Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction or, as the case may be, the aggregate of the amounts of deduction shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction or, as the case may be, the aggregate of the amounts of deduction under this clause shall not exceed two lakh rupees.

Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation.—For the purposes of this proviso, the expression "new loan" means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.

Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.

Effect of amendment: Prior to the amendment, one can have only one self-occupied house property which is now increased to two house properties. However, with this amendment in the Finance Bill, 2019 the limit of deduction on account of interest on home loan is restricted to a maximum of R. 2,00,000 for the two self-occupied houses. The amendment restricts the overall deduction of interest on home loan for two self-occupied house properties under section 24(b) to Rs. 2,00,000 from AY 2020-21 or FY 2019-20.

In simple terms, if the assessee owns one self-occupied house property, the maximum amount of deduction on interest paid on home loan is limited to Rs. 2,00,000 in a financial year.

Similarly, if the assessee owns two self-occupied house properties, the maximum amount of deduction on interest paid on home loan is limited to Rs. 2,00,000 in a financial year for both the houses.

If the assessee owns more than two self-occupied house properties, the maximum amount of deduction on interest paid on home loan is limited to Rs. 2,00,000 in a financial year for two house properties. The other self-occupied house properties shall be treated as deemed to be let-out.

Read Deduction for interest paid on loan is limited to Rs. 30000

Amendment of Section 54:

This amendment is related to provisions related to exemption from long term capital gains arising from the sale of house property on investment in one new house.

The present law provides that a person can claim exemption from long term capital gains arising from the sale of a residential house property if the taxpayer invests in another residential house within a period of one year before or two years after the date of transfer of old house property. This exemption is restricted to investment by way of purchase or construction of only one new residential house.

This limit of investment in one new residential house property has been increased to two house property to claim the exemption under section 54 with certain conditions with effect from 1st April 2019.

For this purpose, an amendment is carried on in section 54 in the following manner-

In section 54 of the Income-tax Act, in sub-section (1), after clause (ii), the following provisos shall be inserted with effect from the 1st day of April, 2020, namely:––
‘Provided that where the amount of the capital gain does not exceed two crore rupees, the assessee, may at his option, purchase or construct two residential houses in India, and where such an option has been exercised,––
(a) the provisions of this sub-section shall have effect as if for the words “one residential house in India”, the words “two residential houses in India” had been substituted;
(b) any reference in this sub-section and sub-section (2) to “new asset” shall be construed as a reference to the two residential houses in India:
Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.’.

Prior to this amendment, Section 54(1) reads as follows-

54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—
(i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

which after the amendment will read as follows-

54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—(i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

‘Provided that where the amount of the capital gain does not exceed two crore rupees, the assessee, may at his option, purchase or construct two residential houses in India, and where such an option has been exercised,––

(a) the provisions of this sub-section shall have effect as if for the words “one residential house in India”, the words “two residential houses in India” had been substituted;(b) any reference in this sub-section and sub-section (2) to “new asset” shall be construed as a reference to the two residential houses in India:Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.’.

Effect of amendment: The amendment in the Finance Bill, 2019 has extended the exemption under section 54 for investment in two new houses from the long term capital gains arising from the sale of a residential house if the amount of capital gain does not exceed Rs. 2 crore. This is a one-time exemption which can be claimed by the taxpayer and can be claimed only once in his lifetime.

Amendment of Section 80-IBA:

This amendment is related to deductions in respect of profits and gains from affordable housing projects.

The present law provides that if a person earns any profits and gains from the business of developing and building housing projects then a deduction shall be allowed for an amount equal to 100 per cent of the profits and gains derived from such business provided the project fulfils certain conditions. One of the conditions for availing such a deduction was that the project is approved after the 1st June 2016, but on or before the 31st March 2019.

This ending period of 31st March 2019 has been extended to 31st March 2020 by the Finance Bill, 2019.
For this purpose, an amendment is carried on in section 80-IBA in the following manner-

In section 80-IBA of the Income-tax Act, in sub-section (2), in clause (a), for the figures “2019”, the figures “2020” shall be substituted with effect from the 1st day of April, 2020.

Prior to amendment, section 80-IBA(2)(a) reads as follows-

(a) the project is approved by the competent authority after the 1st day of June, 2016, but on or before the 31st day of March, 2019;

which after the amendment will read as follows-

(a) the project is approved by the competent authority after the 1st day of June, 2016, but on or before the 31st day of March, 2020;

Effect of amendment: The amendment in the Finance Bill, 2019 has extended the deduction under section 80-IBA to 31.03.2020.

Amendment of Section 87A:

This amendment is related to the amount of rebate allowed from the tax payable.

The present law provides that an individual who is a resident in India is entitled to claim a rebate from the income-tax payable for a maximum amount of Rs. 2,500 if the 'Total Income' does not exceed Rs. 3,50,000 in a previous year.

This rebate amount has been increased to Rs. 12,500 and the limit of Total Income for claiming the rebate has been increased to Rs. 5,00,000 with effect from FY 2019-20 or AY 2020-21.

For this purpose, an amendment is carried on in section 87A in the following manner-

In section 87A of the Income-tax Act, with effect from the 1st day of April, 2020,––

(a) for the words “three hundred fifty thousand”, the words “five hundred thousand” shall be substituted;

(b) for the words “two thousand and five hundred”, the words “twelve thousand and five hundred” shall be substituted.

Prior to amendment, section 87A reads as follows-

An assessee, being an individual resident in India, whose total income does not exceed three hundred fifty thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of two thousand and five hundred rupees, whichever is less.

which after the amendment will read as follows-

An assessee, being an individual resident in India, whose total income does not exceed five hundred thousand rupees, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of twelve thousand and five hundred rupees, whichever is less.

Effect of amendment: The amendment in the Finance Bill, 2019 has increased the rebate under section 87A from Rs. 2,500 to Rs. 12,500 and the limit of 'Total Income' for claiming the rebate also raised from Rs. 3,50,000 to Rs. 5,00,000 from AY 2020-21 or FY 2019-20.

Read No tax on Income up to Rs. 5 Lakh as per Interim Budget 2019

Amendment of Section 194A:

This amendment is related to the deduction of income-tax or TDS on interest.

The present law provides for deduction on income tax or TDS on interest income other than interest on securities by a bank including a cooperative bank, post office and other persons which includes Financial Institutions like NBFCs, etc. The TDS is made at the time of payment or credit of interest income. However, a threshold limit was provided for Rs. 10,000 in case interest is paid by a bank or post office. For NBFCs, etc. the threshold limit is Rs. 5,000. Thus, if the interest payment to a depositor does not exceed Rs. 10,000 or Rs. 5,000, as the case may be, no income-tax will be deducted from the interest payment. TDS will be made only if the interest payment exceeds the threshold limit in a financial year. However, an individual or HUF or any other person other than a company or a firm can save TDS on interest income by furnishing Form 15G to the bank, post office, etc. A resident senior citizen individual can escape deduction of income-tax or TDS on interest on deposits by furnishing Form 15H.

This threshold limit has been increased to Rs. 40,000 with effect from FY 2019-20 or AY 2020-21 only in respect of payment of interest by a bank or post office only. For other cases, the existing threshold limit of Rs. 5,000 is maintained. Further, there is no change in the threshold limit of Rs. 50,000 for payment of interest to a resident senior citizen individual. Thus, the increase of the threshold limit of Rs. 40,000 will cover non-senior citizen individuals. The limit of Rs. 40,000 shall be computed on per bank basis combining all the branches of the bank where such bank has adopted core banking solutions else the limit shall be computed on a branch-wise basis.

Moreover, TDS on interest is applicable for interest on Fixed Deposits and recurring deposits. If the interest paid by a bank on Fixed Deposits and recurring deposits exceeds Rs. 40,000 in a financial year and if no Form 15G or Form 15H is furnished, if eligible, then TDS under section 194A will apply.

The rate of TDS for payment on interest under section 194A is 10% in all the cases.

For this purpose, an amendment is carried on in section 194A in the following manner-

In section 194A of the Income-tax Act, in sub-section (3), in clause (i), for the words “ten thousand” wherever they occur, the words “forty thousand” shall be substituted.

Prior to amendment, section 194A(3)(i) reads as follows-

(3) The provisions of sub-section (1) shall not apply—

(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed—

(a) ten thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act);

(b) ten thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking;

(c) ten thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; and

(d) five thousand rupees in any other case:

which after the amendment will read as follows-

(3) The provisions of sub-section (1) shall not apply—

(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed—

(a) forty thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act);

(b) forty thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking;

(c) forty thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; and

(d) five thousand rupees in any other case:

Effect of amendment: The amendment in the Finance Bill, 2019 has increased the threshold limit for deduction of income-tax or TDS on interest under section 194A from Rs. 10,000 to Rs. 40,000 from 1st April 2019 in a case where interest is paid by a bank or post office.

Also Read:

TDS credit without TDS certificates in Form 16 or Form 16A

Form 15G and Form 15H in Income Tax

Amendment of Section 194-I:

This amendment is related to the deduction of income-tax or TDS on rent.

The present law provides for deduction of income-tax or TDS on payment of rent to a resident person for use of plant and machinery and any land and building. The rate of TDS from such rent payment is 2 percent and 10 percent respectively. the threshold limit for deduction of income-tax or TDS on rent is Rs. 1,80,000. Thus, if the rent payment exceeds Rs. 1,80,000 is a financial year, the tax will be deducted at source @ 2% or 10%, as the case may be, under section 194-I.

The term 'rent' is defined as the payment being made for the use of land, building, furniture & fittings, equipment, plant and machinery (either separately or together) under an agreement of tenancy or lease.

The TDS on rent under this section is different from TDS on rent under section 194IB which covers deduction of income-tax by an Individual or HUF from payment of rent if the rent exceeds Rs. 50,000 per month.

This threshold limit has been increased to Rs. 2,40,000 with effect from FY 2019-20 or AY 2020-21.

For this purpose, an amendment is carried on in the first proviso to section 194-I in the following manner-

In section 194-I of the Income-tax Act, in the first proviso, for the words “one hundred and eighty thousand rupees”, the words “two hundred and forty thousand rupees” shall be substituted.

Prior to amendment, the first proviso to section 194-I reads as follows-

Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and eighty thousand rupees

which after the amendment will read as follows-

Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed two hundred and forty thousand rupees.

Effect of amendment: The amendment in the Finance Bill, 2019 has increased the threshold limit for deduction of income-tax or TDS on rent under section 194-I from Rs. 1,80,000 to Rs. 2,40,000 from 1st April, 2019.

Conclusion: The Interim Budget was primarily aimed to provide relief from taxation to middle-class people of the country. All the measures or amendments proposed in the Finance Bill, 2019 related to Income Tax provisions are only beneficial to the taxpayers. It should be remembered that the Interim Budget 2019 was placed just before two months of 2019 General Elections. Thus the tax sops were seen as measures to woo voters more particularly the middle-class of the country. For a common man whatever may the reasons for the above-mentioned tax benefits, such steps are always welcoming. Due to increase in standard deduction and rebate, the tax liability will reduce drastically which will increase the disposable income of the taxpayers. More relaxation to housing project companies and no tax on two self-occupied house properties will boost the real estate sector of the country. Many innovative steps like faceless assessment will not only reduce the corruption level but also the undue harassment to the taxpayers at the department level. Processing of returns and issue of refunds within 24 hours are indeed praiseworthy. Overall, the direct tax provisions of the Interim Budget 2019 is very impressive for the taxpayers of the country.

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Income Tax Diary

Income Tax Diary

Interim Budget 2019 - Highlights for Income Tax

Highlights of Direct Tax proposals in the Interim Budget 2019 for FY 2019-20

Income tax slab and tax rates for Individual assessees for FY 2019-20 or AY 2020-21 as per Finance Bill, 2019 is given below: