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India presents 2019/20 Interim Budget proposals

Executive summary

The Finance Minister of India presented the 2019 Finance Bill (“the Bill”) in the Indian Parliament on 01 February 2019. There are no proposed changes to tax bands or rates for individual taxpayers.

However, there are some proposed changes to the personal tax system which will apply from the 2019/20 fiscal year. These include:

  • The standard deduction of INR 40,000 (USD 555) will be increased to INR 50,000 (USD 694), resulting in a maximum tax savings of INR 3,588 (USD 50) for taxpayers in the highest tax bracket (35.88%).
  • A tax rebate of INR 12,500 (USD 174) or the actual tax payable, whichever is lower, will be provided for taxpayers whose taxable income is equal to or less than INR 500,000 (USD 6,944).
  • No notional rental value will be attributed for taxpayers who own up to two residential properties where these are not let out by the taxpayer. This was previously limited to one property only.
  • A one-off exemption for the reinvestment of capital gains on the sale of a residential property, which can be reinvested in up to two residential properties in India, compared to only one previously.

Budget proposals impacting individual tax payers

An increase in the standard deduction

The Bill proposes an increase in the standard deduction of INR 40,000 (USD 555) to INR 50,000 (USD 694). The standard deduction is provided to taxpayers without a requirement to provide any evidence for claiming such a deduction.

Taxation of residential properties

Taxpayers who owned two residential properties, which are not let out, were required to impute a notional value for rental income for one of the properties, with the other taken to have a notional rental income of zero. The Bill proposes to allow a notional rental value of zero for up to two residential properties.

The Bill also proposes to restrict the deduction available on interest paid on mortgages to INR 200,000 (USD 2,777) for both residential properties. Previously the INR 200,000 (USD 2,777) applied against a single owner occupied property, so the limit remains at the same level but will now be applied across both properties on an aggregate basis.  

Number of residential properties owned by the taxpayer and not let out

Existing provision

Proposed provision

1

No notional rent to be determined

No notional rent to be determined

2

Residential property 1 – no notional rent
 

Residential property 2 -  Notional rent to be determined and taxed

No notional rent to be determined for both properties

3

Residential house 1 – no notional rent


Residential house 2 and 3 -  Notional rent to be determined and taxed

Property 1 and 2 - No notional rent to be determined


Property 3 – Notional rent to be determined

Capital gains

At present, capital gains earned on the sale of a residential property are exempt if reinvested in another residential property in India. The Bill proposes to provide a one-off exemption if the capital gains are reinvested in up to two residential properties in India instead of just one. To make use of this exemption, the capital gain cannot exceed INR 20,000,000 (USD 277,777).

Rebate

Currently a tax rebate of INR 2,500 (USD 35) is provided to Indian resident taxpayers whose taxable income is less than INR 350,000 (USD 4,861). The Bill proposes to extend the tax rebate to taxpayers whose taxable income is less than INR 500,000 (USD 6,944) and increase the tax rebate to INR 12,500 (USD 174). This effectively means that income up to INR 500,000 is exempt from tax.

TDS

At present, taxpayers who earn interest on bank deposits and post office savings are subject to withholding taxes, if the interest exceeds INR 10,000 (USD 139). The Bill proposes to increase the limit for withholding taxes to INR 40,000 (USD 555).

Tax audits

The Finance Minister has reiterated that further digitisation and enhancements to the taxpayer experience will be carried out in the next couple of years. This is in keeping with the changes announced in the last few years.

Next steps

The provisions of the Bill will not become law until these are approved by both houses of the Indian Parliament and receive the assent of the President of India. Once approved, the provisions will apply for the 2019/20 Indian fiscal year (1 April 2019 – 31 March 2020).

Taxpayers and employers should review the proposed provisions and make changes to the payroll systems, expecting that the proposed provisions will be finalised. It is worth noting that the Bill is presented in an interim budget and a final budget will be presented at a later date.  

EYG no. 05441-193Gbl

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