This year, the government has gone all out to provide relief to all the major social segments of the society.
It was expected to bring in policies and reforms for the farmers. The other classes who hoped for similar sops was the middle class.
The Interim Finance Minister, Mr. Piyush Goyal left no stone unturned to please the middle-class strata of the society. Slew of reforms were brought in for the middle class, thereby giving a boost to their sentiments just before the elections in May 2019.
Let us therefore look at the key takeaways in the Budget 2019 for the Indian middle class.
In this article
- 1.No tax on taxable income up to INR 5 lakhs
- 2.No TDS on bank deposits and post office savings up to INR 40,000
- 3.No TDS on house rent upto INR 2.4 lakhs
- 4. Standard deduction increased from INR 40,000 to INR 50,000
- 5. If we own two self-occupied properties, no notional rent will be charged on both the properties
- 6. Exemption under section 54 of the Income Tax Act to be increased to two residential houses
- Why such a boost has been provided to the middle class?
- Reaction of the Market
1.No tax on taxable income up to INR 5 lakhs
The Interim Finance Minister brought in an innovative tax reform.
Under section 87 A, individuals who have a taxable income of 5 lakhs will get a full tax rebate
The above proposal is expected to benefit roughly 3 crore taxpayers to save up to INR 12,500 crores in taxes annually.
For the same proposal, revenue loss for the government owing to change in taxes are expected at INR 24,000 crores.
We should note that the current tax slabs remain unchanged.
|Income Tax Slabs||Tax Rate||Health and Education Cess|
|Income up to Rs. 250,000||NIL||Nil|
|Income from Rs. 250,001- 500,000||5% (income exceeding 2,50,000)||4% of Income Tax|
|Income from Rs. 500,001- 10,00,000||20% (income exceeding 5,00,000)||4% of Income Tax|
|Income more than 10,00,000||30% (income exceeding 10,00,000)||4% of Income Tax|
Given this benefit, investors having GTI up to INR 6.5 lakhs need not pay any taxes if all deductions under section 80C are claimed (80C includes investments in specific savings such as PPF, ELSS, insurance premiums etc.)
We should also understand that this is not a slab change and only a rebate.
Therefore, those people having higher income will have no relief in tax incidence. However, it can have some impact on people who have an income up to 10 lakh if they can add home loan deduction, education loan deductions etc. to reach an income level of 5 lakhs.
2.No TDS on bank deposits and post office savings up to INR 40,000
The TDS on bank deposits and post office savings which previously was at INR 10,000 has been increased fourfold to INR 40,000.
In the previous budget, the same deduction of INR 50,000 was proposed only for senior citizens. But this time, the Interim Finance Minister has given the relief to all people.
Example: If we have a fixed deposit of say INR 5.75 lakhs at 7 percent per annum, the total interest that comes out to be is roughly 40,000. Meaning we need not pay any taxes on this amount.
3.No TDS on house rent upto INR 2.4 lakhs
People who are dependent on rental income (many middle class, retirees etc.) have something to cheer, in terms of TDS increase in rental income as well.
Previously, there was no TDS on rent up to INR 1.8 lakhs. This amount has been increased to INR 2.4 lakhs.
Note: The TDS is on rent paid to individuals by corporates. The amount deducted is at 10 percent.
4. Standard deduction increased from INR 40,000 to INR 50,000
The standard deduction feature was introduced in the last year budget when the Finance Act 2005 was scrapped.
It is a fixed amount that is deducted from the taxable income of a salaried taxpayer. This has been increased by INR 10,000 to reach INR 50,000 (yearly deduction).
Note: It is also proposed that this deduction will replace the existing transport allowance of INR 1,600 per month and medical allowance of INR 15,000 per annum.
5. If we own two self-occupied properties, no notional rent will be charged on both the properties
The benefit of self-occupied property has been increased from one to two in the budget.
Currently, tax on notional rent has to be paid on all properties but one, even if it was occupied by family members.
The Interim Finance Minister mentioned in the budget that currently there are many middle class families who need to maintain two houses due to jobs, children’s education, taking care of parents etc. Therefore, he proposed to bring this change.
Note: Though this change will benefit most middle class families, people using housing loan interest on the second house will have to face the brunt.
This is because of the general taxation concept wherein if a source of income becomes tax-free, the deduction available on expenses related to that also subsumes.
The maximum interest benefit available under housing loan is INR 2 lakhs under section 24B of the Income Tax Act, 1961.
6. Exemption under section 54 of the Income Tax Act to be increased to two residential houses
Tax exemption is provided on long-term capital gain for sale of two residential houses, loacated in India, as opposed to one.
Also, this option is available only once (for individuals and HUFs), where capital gain on sale of house property is up to Rs. 2 crores.
Why such a boost has been provided to the middle class?
The idea behind providing so many reforms for the middle-income group was simple.
A major reason is because, substantial benefits had not been introduced for the middle-income group for a few years now, but the two main reasons are as discussed below:
- The recently concluded state elections were not in favor of the current ruling government and a huge contributing were the middle income groups. Therefore this time, the budget did pay attention to the needs of the middle class.
- Secondly, the number of income tax payers have increased from 3.8 crores in 2014 to 6.8 crores now.Therefore, in order to bring more people into the tax regime and thereby collect information on the same, the reform was carried out.
Reaction of the Market
After the slew of reforms brought in for the middle class, the sentiments of the investors improved and the market gave a thumbs up.
As the tax reforms are expected to increase the money in hand for middle class, major consumer goods companies such as HUL, ITC, Marico etc. ended in green.
The boost for middle class was also substantiated with boost to affordable housing as well. After the limit under section 80 B (A) was increased by one more year, major real estate companies such as Oberoi Realty, Sunteck Realty, and DLF rallied.
Overall, the investors seemed to be pacified with the budget as the Sensex ended the day with an increase of more than 200 points.
Disclaimer: The views expressed in this post are that of the author and not those of Groww