New Delhi: The Narendra Modi government on Friday announced a series of sops for the neo-middle and the salaried class to woo them before the general election.
Those with annual taxable income of upto Rs 5 lakhs have been exempted from paying personal income-tax as the government said they will get a full tax rebate. However, individuals earning higher income too can escape the tax net by using tax saving investments to bring down their taxable income to Rs 5 lakhs.
A person with annual earnings upto Rs 7 lakhs can avoid having to pay any tax by using the Rs 2 lakh tax investments allowed under Section 80C and the New Pension System (NPS).This is because after using Rs 2 lakh tax investment, the taxable income will fall to Rs 5 lakhs.
This exemption could go higher if one uses additional allowances allowed, such as on health insurance. But if your income is even Rs 1 above Rs 5 lakhs after exhausting the investment limit, you will fall back under the old tax structure. You will then have to pay Rs 12,000 tax on Rs 5 lakhs. This is due to the fact that the tax exemption limit has been retained at Rs 2.5 lakhs annual income and there is no change in the tax structure.
“This will provide tax benefit of Rs 18,500 crores to an estimated 30 million middle class taxpayers, comprising self-employed people, small businesses, small traders, salary earners, pensioners and senior citizens,” said interim finance minister Piyush Goyal.
To give relief to salaried persons, Mr Goyal proposed to increase the standard deduction from Rs 40,000 to Rs 50,000. The tax saved under this will depend upon the salary of the individual. “This will provide additional tax benefit of Rs 4,700 crores to more than 30 million salary earners and pensioners,” the minister said.
Mr Goyal increased the TDS threshold on interest earned on bank or post office deposits from Rs 10,000 to Rs 40,000. Currently, if someone earned over Rs 10,000 interest on deposits, banks used to deduct 10 per cent as TDS and deposit it with the income-tax department. It was problematic for pensioners and housewives who don’t fall under the tax net as they had to file for a refund with the income-tax department.
The TDS threshold for deduction of tax on rent has also been proposed to be increased from Rs 1,80,000 to Rs 2,40,000 for providing relief to small taxpayers.
The finance minister proposed to exempt levy of income tax on notional rent on a second self-occupied house. At present, income-tax on notional rent is payable if one has more than one self-occupied house.
The benefit of the rollover of capital gains under Section 54 of the Income-Tax Act will be increased from investment in one residential house to two residential houses for a taxpayer having capital gains up to Rs 2 crores. This benefit can be availed only once in a lifetime. To make more homes available under affordable housing, the benefits under Section 80-IBA Income-Tax Act are being extended for one more year, that is to the housing projects approved till March 31, 2020.
“Also, for giving an impetus to the real estate sector, I have proposed to extend the period of exemption from levy of tax on notional rent, on unsold inventories, from one year to two years, from the end of the year in which the project is completed,” said Mr Goyal.