Budget 2019: Middle class bags tax exemption bonanzas

In the interim Union Budget 2019, the Finance Minister Piyush Goyal announced several changes to the Income Tax Slab Rates, while also announcing tax exemptions to benefit the middle-class section of the voter base. 

The FM proposed that individuals earning up to Rs. 5 lakh will receive a full tax rebate. This will yield tax savings of approximately Rs. 12,500 for all the tax payers falling in this bracket. This implies that people with a gross income up to Rs. 6.50 lakh may not be required to pay any income tax, if they invest in provident funds, specified savings, insurance and prescribed equities. 

With 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, people with an even higher income will not have to pay any tax at all. This is expected to provide a tax benefit of Rs. 18,500 crore to an estimated population of 3 crore middle-class taxpayers composed of self-employed, small business, small traders, salary earners, pensioners and senior citizens. 

The government also announced that interest income of up to Rs. 40,000 from deposits will be exempted from tax. However, the implementation of the same will be the responsibility of the next government in the full-fledged budget post the Lok Sabha elections. 

Additionally, standard deduction would be raised to Rs. 50,000 from Rs. 40,000. In the Union Budget 2018, the then Finance Minister, Arun Jaitley had introduced standard deduction of Rs. 40,000. The additional deduction was suggested in place of existing deductions of Rs. 15,000 for medical reimbursement and Rs. 19,200 for transport allowance. 

Moreover, the TDS income on rental income was also raised to Rs. 2,40,000 from Rs. 1,80,000. The benefit of rollover of capital tax gains is also proposed to be increased from investment in one residential house to that in two residential houses, for a taxpayer having capital gains up to Rs. 2 crore. The same can be exercised only once in a lifetime. 

Goyal also enumerated on the government efforts to simplify the tax interface, thereby resulting in greater tax collections and return filings. All scrutiny pertaining to taxation will be conducted electronically with zero interaction between tax-payers and the tax authority in a span of two years. The government expects all assessment and verification of IT returns to take place in an anonymized manner where there will be no intervention by tax officials. All Income Tax returns will be processed within 24 hours and refunds will be issued simultaneously. 

Giving an account of the tax collection for last year, FM said that direct tax collections have risen to nearly Rs. 12 lakh crore from Rs. 6.38 lakh crore in 2013-2014. The tax base also climbed to Rs. 6.85 crore from Rs. 3.79 crore. Furthermore, due to the government efforts to curb fraudulent practices involving black money, corruption was arrested to a certain extent. As such, around 99.54 per cent tax returns were accepted without inviting any form of scrutiny. In January 2019, the GST collection crossed the Rs. 1 lakh crore mark. 

The GST witnessed consistent reduction, thereby resulting in a relief of Rs. 80,000 crore to consumers. Moreover, most daily use items for the poor and middle-class sections of the population now fall in the 0-5 per cent tax bracket. The average monthly tax collection in the current year stands at Rs. 97,000 crore. 

In conclusion, we observe that the Budget has attempted to reduce the tax burden on a broad spectrum of lower to middle-class population, while also enhancing the functioning of the Income Tax department through digitization.