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10 Takeaways from the 2019-2020 Interim Budget

  • Highlights

  • People earning up to Rs. 5 lakh get full tax exemption

  • Tax exemptions for FDs, rental income, and gratuity are higher

  • The tax filing process is to be automated with refunds issued in 24 hours

  • Rural economy gets a boost with cash aid to farmers

Interim budgets are usually uneventful. With general elections in two months, there is not much time for the current government to implement budget ideas. They are usually brought into effect when the new government assumes office later. Finance minister Piyush Goyal outlined the vision of the government using the opportunity presented by the budget. Incentives to boost rural and urban consumption through welfare schemes and tax rebates, simplification of tax processes were the few highlights. Yet, the budget maintains control over expenditure and the fiscal deficit.

Here are 10 things to note:

1. Tax incentives: By allowing tax exemption to people earning up to Rs. 5,00,000, the finance minister is encouraging them to either spend or invest. This is a key measure to boost the demand for goods and services. The standard deduction limit has been raised to Rs. 50,000 from the current Rs. 40,000. This leaves more money in the hands of the taxpayer. There is a good chance that people may choose to spend more money in the short-term once this measure is implemented. 

2. Boost to the rural economy: The interim budget announced a direct cash transfer of Rs. 6,000 to farmers holding land up to 2 hectares. This is about 20,000 square metres. The money would be sent in three instalments of Rs. 2,000 each. The rural economy has remained a laggard as the farm income fell. With more money in hand, there is a good chance that rural consumption may see growth. This presents an opportunity for entrepreneurs looking to sell goods and services to rural markets.

3. FDs get increased tax exemption: Senior citizens often complain about tax deducted at source in fixed deposits with an annual interest of over Rs. 10,000. Since they are eligible for an exemption, they have to claim a refund later. The government has enhanced this limit to Rs. 40,000. This means you can hold an FD worth Rs. 5,00,000 and the interest of up to Rs. 40,000 will be credited to your account without TDS.

4. Notional rent scrapped: If people paid tax on the notional rent of a second house owned, they do not have to do that anymore. It was a liability irrespective of whether you got any rent.

5. Rental income tax burden eased: Rent is a source of second income for many people. It is mandatory now to deduct tax at source or TDS if the annual rent is Rs. 1,80,000 and above. The interim budget raises this limit to Rs. 2,40,000. Measures like these are likely to encourage demand for low-cost housing.

6. Metro homeowners get relief too: In cities like Mumbai and Delhi, those who sell homes can easily have a capital gain of Rs. 1 crore and above, as prices of properties are sky high. When a house is sold, you have to invest your capital gains under section 54 of the Income Tax Act in bonds or invest in another house. The government has allowed the capital gain of up to Rs. 2 crore to be rolled over. You can buy two homes up to that value.

7. More Gratuity: There is more good news for those saving for retirement. The budget enhances the tax relief of gratuity up to Rs. 20 lakh from Rs. 10 lakh earlier. This should bring cheer to employees in the private sector.

8. NPS news: The National Pension Scheme will now have a higher government contribution for government employees. It will now be 14% against 10% earlier. The government will deposit 4% more than their contribution to the NPS.

9. Tax transparency: The budget highlights an important tax process reform. Going forward, any interaction with the tax authorities would be automated and anonymous. There is no need for the taxpayer to physically meet anyone in the tax department for any query on tax returns. The budget also announced a programme to automate all tax assessment processes and issue refunds within 24 hours. This ambitious plan will be rolled out next year.

10. Why this budget matters: The government has announced a ‘please all’ budget ahead of elections in April and May 2019. Reforms and reliefs announced can only be executed by the next government. Whoever comes to power is unlikely to change these people-friendly moves. This has an implication on future interest rates. A budget to make people happy is usually an expansionary budget. The government deficit rises and borrowing goes up. This puts pressure on interest rates. Besides this, the government has promised minimum support prices to farmers that are higher than now. That would further add to consumer price inflation. All of this means interest rates would remain firm in 2019.

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