Budget 2019: How to defend your income from the taxman

From knowing how to maximise your annual income to the personal income tax googlies you need to look out for, here's all the help you need to up your tax game post Budget 2019.

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Various tax sops, be it for your salary perks or investments that you make, help reduce your tax outgo.
For the salaried taxpayer, budgets can seem more complex than the Duckworth-Lewis system. This Times of India-EY Guide will help you dodge the tax bouncers and improve your economy rate.

Nine things individual taxpayers should know
1. An additional tax deduction of up to Rs 1.5 lakh has been introduced for interest on home loan taken during the period April 1, 2019 to March 31, 2020 for purchase of residential house with stamp duty value up to Rs 45 lakh. For instance, for self-occupied house property, after a deduction for Rs 2 lakh is claimed under the house property head, additional deduction can now be claimed for up to Rs 1.5 lakh. Individual should not own any other residential property at the time of sanction of loan. This will lead to additional tax savings for middle-class home buyers.


2. Tax deduction of up to Rs 1.5 lakh introduced for interest on loan taken during the period April 1, 2019 to March 31, 2023 for purchase of electric vehicle. This will provide impetus to the electric vehicle market in India and reduce vehicular pollution.

3. Long-term capital gain on sale of residential house property, sold before March 31, 2021, will not face any tax if invested in eligible startups. The capital gains tax exemption will be available to the extent of the investment made. Any surplus in the capital gains will be taxed at 20%. This provision was set to expire, but has been extended by two years.

4. Tax exemption on lump-sum withdrawal from National Pension System (NPS) has been increased to 60% from 40% of total accumulated corpus. With this change, entire lump-sum withdrawal from NPS, which is limited to 60% of the accumulated corpus, is now exempt from tax.

5. An individual can now quote Aadhaar wherever PAN is required to be quoted. If an individual does not have a PAN, he/she can furnish Aadhaar in lieu of PAN. The PAN will be allotted to such individuals, and once both these are linked, he or she can use Aadhaar in lieu of PAN.

6. Pre-filled tax returns containing information pertaining to salary, capital gains, bank interest, dividends and tax deductions at source will be available for taxpayers. The pre-filled returns are likely to be available for the financial year 2019-20 and will speed up filing of tax return and ensure accuracy of reporting of taxes and income.

7. Those with a taxable income of 2 crore or more have to bear a higher tax burden owing to an increase in surcharge rates. The surcharge stands increased from 15% to 25% for those having a taxable income between Rs 2 crore and Rs 5 crore, which translates to a tax burden of 39% as opposed to 35.88% earlier. For those earning a taxable income of above Rs 5 crore, the surcharge is now 37%, as against 15%. This translates to a tax rate of nearly 43% as opposed to 36%.

8. Transfer of money or property in India (exceeding 50,000) on or after July 5, 2019 without adequate consideration by a resident in India to a person outside India will be taxable in the hands of the non-resident. However, exemptions and carveouts are available – such as gifts from relatives or on specific occasion such as marriage. This will lead to additional tax liability for non-resident Indians.

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9. Individuals having income below the threshold exemption limit are also required to file I-T return if during a financial year: (a) deposits in current accounts are more than Rs 1 crore; or (b) expense on foreign travel for self or any other person is more than Rs 2 lakh; or (c) expense on electricity is more than Rs 1 lakh; or (d) taxable income is below exemption limit due to claiming certain prescribed deductions if long-term capital gains arising on sale of a house or securities are invested in eligible assets – such as another house or prescribed bonds.

Personal income tax googlies you should watch out for
1. A retrospective amendment dating back to July 1, 2015 has been introduced to catch those who had managed to escape tax on unaccounted offshore income by stating that they are non-residents. Now, they will be liable under the Black Money Act if they were resident in a previous year to which the foreign unaccounted income relates or in which the undisclosed foreign asset was acquired.
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2. NPS is now more attractive for central government employees as they are eligible for full deduction for government’s enhanced contribution to NPS @ 14% of salary and can also claim a deduction under Section 80C for their own contribution to Tier-II NPS account. However, such benefit has not been extended to other private sector employees or self-employed individuals.

How to maximise your annual income
Various tax sops, be it for your salary perks or investments that you make, help reduce your tax outgo.

Your income is from 5 broad sources-
1. Salary: Income from employer, including value of perks and allowances
Deductions/exemptions available: Standard deduction(Rs 50,000); HRA; LTC etc

2. House property: Income from rent
Deductions/exemptions available: Standard deduction (30% of income post house tax); interest paid on home loans and losses from previous years

3. Business: Net profit from business or profession
Deductions/exemptions available: Business-related expenditure incurred and brought-forward losses

4. Capital gains: Profit or loss from sale of assets: investments, jewellery, property etc
Deductions/exemptions available: Depends on holding period of asset; availability of indexation benefit; and investments in eligible options and brought forward losses

5. Others: Miscellaneous income, like dividend, bank interest, and lottery winnings
Deductions/exemptions available: Dividends up to Rs 10 lakh are tax free. As are gifts from specified relatives or those received on certain occasions like marriage; interest from PPF ac is also tax-free

Clubbing will add to your income
In certain cases, the income of the spouse or child is clubbed with that of the taxpayer who has to bear the tax. For instance-
a) Income earned through investments in the name of a child (below 18 years). In this case, the minor’s income is clubbed with that of the parent who earns more
b) Income from investments made from the taxpayer’s funds in the spouse’s name

The rebate debate explained
Availability of a full rebate for individual taxpayers having a net taxable income of up to Rs 5 lakh has changed the contours of computing tax for the financial year 2019-20. Even a salaried employee with a gross income of up to Rs 7 lakh may not attract any tax provided they make appropriate investments to claim Rs 1.5 lakh as a deduction under Section 80C.

indeftax

Tax exemption
Income below Rs 2.5 lakh is tax-exempt.

Plus there’s a rebate
Under the rebate mechanism, individuals whose net taxable income is Rs 2.5-5 lakh will be taxed at a rate of 5%, but the rebate will be deducted from the tax payable.

The sting: Those whose net taxable income is higher than Rs 5 lakh do not benefit from the rebate, and the tax rates as per the slabs will apply.
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