Sending out a strong signal to the salaried class, Finance Minister Piyush Goyal announced full tax rebate on income up to Rs 5 lakh per annum while raising the standard deduction for the same segment to Rs 50,000 from the current amount Rs 40,000. The tax rebate and increase in standard deduction will provide a relief of more than Rs. 23,000 crore tax relief to 3 crore middle class taxpayer.
There is no change in the existing rates of income tax which will continue. So, anyone with an annual income of up to Rs 5 lakh per year will not pay any tax up if he or she invests Rs 1.5 lakh under Section 80C in provident funds, specified savings and insurance etc. Additional deductions such as interest on home loan up to Rs. 2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance and medical expenditure on senior citizens etc, are also provided for in the Interim Budget 2019-20.
He also raised the exemption on tax deducted at source (TDS) on interest earned from bank and post office savings raised to Rs 40,000 form the current Rs 10,000.
Goyal announced that tax benefit of Rs. 18,500 crore is proposed to be provided to an estimated 3 crore middle class and small taxpayers comprising self employed, small business, small traders, salary earners, pensioners and senior citizens.
The TDS threshold for rent has been increased from Rs 1.8 lakh to 2.4 lakh while there will be no tax on notional rent on the second house. Currently, income tax on notional rent is payable if one has more than one self-occupied house.
" 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 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," Goyal said in his speech.
Even the gratuity limit has seen a major hike of Rs 10 lakh from the current Rs 10 lakh to Rs 20 lakh. Goyal also said that a mega pension scheme, known as 'Pradhan Mantri Shram Yogi Mandhan (PMSYM)', under which unorganised sector employees will be eligible for Rs 3,000 per month will be rolled out which will benefit almost 10 crore people employed in the unorganised sector.
Goyal announced that the 'Pradhan Mantri Shram Yogi Mandhan will be the "world's biggest pension scheme for unorganised sector in five years". The workers will get Rs 3,000 per month under the PMSYM after they reach the age of 60 years. The pensioners will have to contribute Rs 100 per month.
He also said 50 per cent of the country's Gross Domestic Produce (GDP) comes from the "sweat and toil of 42 crore workers in the unorganised sector."
High growth and formalisation of economy have seen the Employees' Provident Fund Organisation (EPFO) membership go up 2 crore in the last two years, Goyal added.
Experts welcomed the tax rebates, saying the move will give a big boost to the housing sector.
Gagan Randev, National Director, Capital Markets and Investment Services said, "The decision to fully exempt tax for Individuals up to 5 Lakhs (effectively 6.5 lakhs with Investment deductions) is a big step and massively positive for first time home buyers. With the benefits of the PMAY scheme, this would spur a lot of people sitting on the fence of thinking about their first home."
"Proposal to give tax rebate for income up to 5 lakhs will help in increasing the home buyer's budget and can provide a big boost in increasing demand for housing," added Joe Verghese, Managing Director, Colliers International India.
(The increase in gratuity limit earlier mentioned in this story was Rs 30 lakh based on a PIB tweet. It was later rectified as Rs 20 lakh.)