Income Tax Slab Reforms

The key parameters awaited during every budget is the Income Tax slab which directly impacts every tax payer. The Finance Minister is expected to announce positive changes in this Union Budget, in particular, for the middle class tax payers. Relief is expected for all tax payers by relaxation of limits as per the following:

  • For individuals below 60 years of age, the limit is expected to be raised to INR 3 lakhs from INR 2.5 lakhs.
  • For individuals aged 60 years to 80 years, the limit is expected to be raised to INR 3.5 lakhs from INR 3 lakhs.
  • For individuals aged 80 years and above, the limit is expected to be raised to INR 5.5 lakhs from INR 5 lakhs.

In addition to current limits, the tax rates are also expected to undergo a reform. Currently, the tax rate for individual with an annual income of over INR 10 lakhs is 305 and is expected to come down to 25%. Additionally, for individuals with an annual income between INR 5 lakhs to INR 10 lakhs the tax rate is expected to come down from 20% to 15%. However, the tax slab of 5% is expected to remain unchanged.

Expectations of a change in tax slab from INR 10 lakhs to INR 20 lakhs have also been doing the rounds in a bid to protect citizens against the rising inflation and changes in economic conditions of the country.

Maximum rebate likely to return

The Rebate offered under Section 87A is likely to reclaim its maximum ceiling of INR 5,000 once again even though it had been brought down to INR 2,500 in recent years. Here, it is expected that full rebate will still be applicable for people with an income of INR 5 lakhs which had been raised from INR 3.5 lakhs. The maintenance of maximum rebate will be a welcome continuation for citizens of the country.

Section 80C Reforms

Section 80C is probably the leading source of savings for citizens as it allows investments and savings through several tax saving instruments. While an increase in the limit to INR 2 lakhs from INR 1.5 lakhs has been the hope for a long time, it is expected to finally be reformed this year. This will be a great step in promoting savings amongst citizens while also allowing for reduced tax payments.

In addition, reforms are also expected under Section 80CCD (1B) regarding the National Pension Scheme (NPS) deductions. The investment opportunities are likely to increase to INR 75,000 from the current INR 50,000 in an effort to encourage more investments. Further, it is expected that the Finance Minister may also raise the tax-free limit from 40% to 60%. Keeping in with the theme of encouraging savings, the Budget may also reintroduce infrastructure bonds in a bid to boost investments, save on taxes while also supporting Government funding.

Reforms in child support

In keeping with the rising cost of education for children, it is expected that the limit of children education allowance for one child will be raised to INR 1000/month per child from the current limit of INR 100/month.

Additionally, the children hostel allowance limit is expected to increase to INR 2000/month per child from the existing limit of INR 300/month per child.

Changes under Section 80D

This is another important aspect of the Income Tax Act, 1961 that plays a huge role in the health policies of citizens in India. Reforms are expected to be made in this Section as well primarily in the form of an increase in the premium paid towards medical insurance to INR 30,000 from INR 25,000 for people aged below 60 years. Further, currently the deductions in case of specific diseases are at INR 1 lakh for those aged 60 years and above while for the others it is at INR 40,000. It is expected that the limit will be made equal for all age groups at INR 1 lakh.

To enable better health among citizens and prevent the onset of severe ailments, the Government had offered a benefit of INR 5,000 under Preventive Health Checkup which may be raised to INR 10,000 in this Budget. Additionally, this Budget may bring back medical or transport allowances which had been subsumed under standard deduction.

Home Loan reforms

Reforms in this Section can offer huge relief for home buyers. Currently, the repayment of principal on home loan is deductible under Section 80C which can offer relief if limits in that Section are to increase. Further, the limit on the home loan interest may rise from INR 2 lakhs to INR 3 lakhs for aided relief on taxes.

Benefits in House Rent Allowance (HRA)

HRA is a massive tax benefit for salaried employees. Currently, the limit is offered up to 50% of the salary to citizens in metros and up to 40% for the rest. The limit is expected to be made at par for all cities at up to 50%. Further, at present the calculation of HRA is done by taking 10% of the basic salary along with DA (Dearness Allowance).

One other condition is that HRA benefit is restricted to 10% of basic + DA. This 10% may be further decreased to 5% so as to give the higher benefit of HRA exemption to citizens. The new Budget may decrease this limit to 5% to enable improved tax saving benefits.

Other changes predicted in the 2019 Union Budget

  • Interest deduction benefit of INR 50,000 offered to senior citizens to be offered to all age groups.
  • Reduction of income to be shown to 5% from 6% under section 44AD for the amount received through banking channels. Further, a minimum of 40% of total income to be reported instead of 50% at present under Section 44ADA.
  • An increase in deduction for rent paid from INR 5,000 per month to INR 10,000 per month.
  • An increase in standard deduction for salaried individuals from INR 40,000 to INR 50,000.
  • More cities to be given metropolitan status beyond Delhi, Mumbai Chennai and Kolkata.
  • An increase in limit of vehicles for a tax-filer from 10 vehicles to 15 vehicles with income calculation limits revised to INR 10,000 per vehicle from INR 7.500 per vehicle.
  • Relaxation of interest up to INR 15,000 from INR 10,000 for tax purposes under Section 80TTA.
  • Increase in duration of education loan tax benefit from 8 years to 15 years.
  • A reduction on TDS on bank FDs from 10% to 5%.
  • Possibility of new tax rules for Bitcoin transactions.
  • Change in Fiscal cycle from April to March, to January to December in keeping with International standards.

Thus, while the Union Budget has created quite the buzz already, these are some of the common predictions that are hopeful to be achieved in this year’s Budget. With a new Finance Minister at the helm, it will be exciting to see the new changes that can promote financial well-being for the citizens of the largest democracy in the world.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.