Budget 2019 analysis: Tax exemptions and Real Estate Boosts

By Chiya Ahuja, Deeksha Shyam Sundar

The Interim Budget for 2019-2020 presented before the parliament on Friday proposed, among other things, allowing full tax rebate to individuals taxpayers having taxable annual income up to Rs 5 lakh. While this move was widely celebrated, like many other tax law changes it seems to have been misunderstood by the public at large.

The popular view appears to be, that the threshold limit of Rs 2.5 lakh available to all taxpayers has been increased to Rs 5 lakh. Some news reports also seem to suggest that this benefit would only be available to taxpayers in the age group of 60 – 80 years.

A report by The Wire explains that Friday’s budget did not alter the current scheme of exemptions, deductions, or the threshold limit. It merely increased the amount of rebate of tax granted under the Income Tax Act. Therefore, the view that the same is available to all taxpayers regardless of whether they satisfy the eligibility criteria, is deeply flawed. The rebate benefit proposed under the Budget is only available to individuals residing in India, with total income of Rs 5 lakh or below. The assumption that every taxpayer may now exclude Rs 5 lakhs from their income while computing their income tax liability is inaccurate. The age of the taxpayer is not a relevant parameter for claiming this rebate benefit.

Under this scheme, taxpayers with total income of Rs 5 lakh or below will get a rebate of Rs 12,500/- or 100% of the income tax payable, whichever is less. The rate of income tax applicable to individuals in the total income bracket of Rs 2.5 – 5 lakh is 5%. Taxpayers claiming the rebate in question can have maximum total income of Rs 5 lakh. Given the threshold limit of Rs 2.5 lakh, the maximum amount of tax payable by such taxpayers can be Rs 12,500/- (5% of Rs 2.5 lakh). Therefore, despite the cap mentioned in the provision, under the current rate-structure taxpayers qualifying for the rebate will be eligible for 100% of income tax concession.

Finance Minister Piyush Goyal also proposed, in his speech, a slew of measures to boost the real estate sector which includes extending the exemption period for levy of tax on notional rent on unsold inventories to two years. Owners of unsold inventory are currently exempt from paying income tax on notional rent for a period of one year, says an NDTV report.

“The Minister has proposed extending the period of exemption from levy of tax on notional rent, on unsold inventories, from one year to two years. This will be applicable from the end of the year in which the project is completed, and this will ensure that the slowdown in creation of fresh stock as a result of the previous situation will be positively impacted,” said Niranjan Hiranandani, President of the National Real Estate Development Council (NAREDCO).

Anoop Kumar Mittal, CMD, NBCC, said, “The government’s endeavour to significantly reduce the tax burden on home buyers is highly commendable.”

The benefit of rollover of capital gains under Section 54 of the Income Tax Act will also be increased from investment in one residential house to two residential houses for a taxpayer having capital gains up to Rs. 2 crore.

“The budget has taken a good step in increasing disposable income of middle class by making changes like increasing the basic exemption limit to Rs. 5 lakh, increase in standard deduction and increase in deduction for interest income,” said Dhaval Shah, Joint Managing Director, Parinee Group.