Tomorrowmakers

Income tax changes in Budget 2019 and how will it impact

A look at the taxation impact of Interim Budget 2019 on the industry in general, the relevant sectors with applicable budget proposals, and the taxpayer in general.

How the Budget of 2019 has impacted income tax

An Interim Budget presents a set of accounts addressing both receipts as well as expenditures that the government places before Parliament till the full Budget is presented after the general elections. In view of the upcoming general elections in May 2019, an Interim Budget was presented by the interim Finance Minister Piyush Goyal. 

The Budget unveiled a major scheme targeted to benefit farmers, a pension scheme for workers in the unorganised sector, tax sops, and allocations on a variety of welfare and developmental agenda. So it scores highly in efforts to build social infrastructure (such as farmers’ benefits and rural employment), better living standards (medical care and cleanliness) and technology (digital villages and artificial intelligence).

Related: Key takeaways of Union Budget 2019

Individuals

The impact of any budget on the general public is most apparent as not much fine print is required to be pored over. This budget is no exception; let’s look at some major impacts:

Impetus on tax savings

  • Individual taxpayers having taxable annual income up to Rs 5 lakhs need not pay any income tax. If they make investments in provident funds, specified savings, insurance etc. gross income of up to Rs 6.5 lakhs would fall outside the tax bracket. This will lead to tax savings at the taxpayer level and also reduce their compliance efforts. 
  • For salaried persons, standard deduction has been raised from Rs 40,000 to Rs 50,000. This will amount to an additional tax benefit of Rs 4700 crore nationwide and benefit more than 3 crore salaried personnel and pensioners.
  • TDS threshold on interest income earned from bank or post office deposits has been raised from Rs 10,000 to Rs 40,000. This will benefit people with moderate savings deposits and spare them from having to pay income tax. However, it will nevertheless be taxable for others when added up to their gross income.

Better Income Tax Administration and Ease for the Taxpayer

  • The push towards technology-driven tax assessments and return processing will greatly benefit individual taxpayers from the hassle of compliance-related efforts.
  • Income tax on notional rent on a second self-occupied house is now proposed to be made exempt. Presently this exemption is available for one self-occupied house only. The FM noted that having two houses is quite common in today’s nuclear family dominated society.
  • TDS threshold for deduction of tax on rent is proposed to be raised from Rs 1,80,000 to Rs 2,40,000. This should provide relief to small taxpayers.
  • Long-term capital gains exemption arising from proceeds of the sale of a residential house has now been expanded to purchase of two residential houses. However, this is a onetime exemption and the amount of capital gains cannot exceed Rs 2 crore. This will encourage people to invest more in real estate.

Conclusion and Criticism

Although the Budget offers many benefits to taxpayers, it will significantly reduce the revenue of the government. Besides, the FM has also relieved smaller businesses and GST payers from indirect tax liabilities. As already mentioned, welfare expenditure has also been enhanced in this budget. 

Industry

It must be noted that India was the 11th largest economy in the world in 2013-14, and is now the 6th largest, and poised to become a $5 trillion economy in the next five years. India saw a massive inflow of Foreign Direct Investment (FDI) during the last five years to the tune of $239 billion. Against this backdrop, let us take a look at the proposals of the interim budget that affects the industry in general, along with their impact:

Government e-Marketplace (GeM) platform

While presenting the Budget, the Finance Minister stated that the Government e-Marketplace (GeM) platform created by the present government two years ago has now extended to all Central Public Sector Enterprises, and that transactions of over Rs 17,500 crore have taken place so far. This has not only resulted in an average savings of 25-28% but also brought in more transparency, efficiency, and speed into public procurement and transactions.

Goods and Service Tax changes

  • Exemption from GST for small businesses has been doubled from Rs 20 lakh to Rs 40 lakh. This will spare small businesses from GST compliance. 
  • Small businesses having a turnover of up to Rs 1.5 crore will now be able to avail of the composition scheme, up from the previous limit of Rs 1 crore. These businesses have to now pay only a 1% flat rate and file only one annual return.
  • Small service providers (or a mix of goods and service providers) with turnover up to Rs 50 lakh can now opt for composition scheme and pay GST at 6% instead of 18%. This will benefit more than 35 lakh small traders, manufacturers, and service providers across the country.

Corporate Tax benefits extended 

Domestic companies with a turnover of less than Rs 250 crore during FY 2016- 17 will continue to enjoy a reduced tax rate of 25% (increased by applicable surcharge and cess). The base year for this reduced tax rate is proposed to be extended to domestic companies with a turnover of less than Rs 250 crore for FY 2017-18. Previously, this step benefited almost 90% of Indian companies and the entire MSME sector; it is a step towards reducing corporate tax in a phased manner. 

Stamp Duty Rationalisation

  • The proposed amendments in stamp duty provisions aim to rationalise various stamp duty provisions and streamline the stamp duty collection mechanism. Stock exchanges and depositories will be designated to collect stamp duty on sale or transfer of securities. This will streamline the collection of stamp duty and ensure its seamless sharing with states. 
  • A single stamp duty rate for all financial securities transactions is proposed in this budget. This will help in reducing procedural requirements for brokers. 

Related: Budget 2019: What it means for taxpayers 

Conclusion and Criticism

To sum up, the thrust of this budget was on social infrastructure, ease of living, and technology-led governance aimed at inclusive and equitable growth. This means greater public expenditure; if this is not matched by decent earning it can lead to a budget deficit at the national level.

On the flip side, there are a few negative aspects that can transpire out of the budget proposals, such as:

  • The estimated Central Goods and Service Tax (CGST) collection for the next financial year is Rs 6.10 lakh crore, which would see a 20% growth over the revised collection estimates of the current financial year (Rs 5.04 lakh crore). Considering the growth so far is only 8%, a 20% increase may be a bridge too far. We can expect some strict measures to control revenue leakage and expand the tax base to bridge this gap.
  • The fiscal deficit target couldn’t be met because of the heavy welfare expenditures. It is generally regarded that fiscal deficit eventually leads to higher taxes, higher inflation, or both. The FM mentioned that the inflation rate is under control. However, with increased expenditure and transfer of direct benefits, there is a risk of inflation in the market. 

Related: Vote-on-account: What you need to know?

Sectors

If we look at various sectors within the industry and see how the interim budget affects them, we can consider the following proposals for review:

Real estate wins

  • The benefits under Section 80-IBA of the I-T Act were extended by a year for projects approved until 31st March 2020. This section allows real estate developers to deduct 100% of profits derived from the development of affordable housing projects. Affordable housing can be a major driving force in the real estate sector for quite some time.
  • Amendments proposed in the interim budget in favour of the real estate sector (also see the ‘Individuals’ section below), particularly the affordable housing market, will also benefit allied sectors like steel and cement.
  • As per Finance Act, 2017, notional income on rentals from property held as stock-in-trade was taxable. This was subject to the condition that it was held beyond one year from the end of the financial year in which the certificate of completion of the property was obtained. This period of holding is now proposed to be extended to two years. This step will provide tax relief to real estate developers, particularly those who are suffering from a market slump. It will also encourage new investment in the sector.

Related: Budget 2019 makes bank deposits and realty investments shine again 

Other Key Sectors who might benefit

Automobile: Because of the significant rural and agricultural focus, the automobile industry engaged in commercial and agricultural automobiles can expect a positive effect in rural areas.

FMCG: The Budget can be viewed as positive for the FMCG sector because of budget proposals that can drive demand and increase consumption. Higher personal disposable income can be expected because of proposals like,

  • Higher tax rebate for up to Rs. 5 lakh,
  • Rural disposable income to increase due to farmer's package and interest subventions,
  • Scrapping notional tax on a second home,
  • Capital gains tax exemption for two homes,
  • Extending notional tax waiver for unsold real estate inventories up to two years.

Civil infrastructure: Some of the benefits of the Rs 19,000 crore allocated to Gram Sadak Yojana can be expected to filter down to the civil infrastructure industry, such as construction and construction equipment.

Better Income Tax Administration

This budget steered towards technology-driven tax assessments and return processing, to be achieved in the next two years. This will spare companies and other taxpayers from personal interface and bring transparency and speed to the assessment process.

Conclusion and criticism 

Mutual fund players were expecting a rollback of the long-term capital gains on equity funds introduced last year. Direct tax sops might indirectly benefit BFSIs as people with more disposable income would definitely invest portions of their tax-free income. However, without any clear-cut benefit directed at the BFSI sector, it is only a lukewarm Budget for this industry.

Taking all of the above into consideration, the question on people’s minds is whether the short-term benefits of welfare and tax sops come at the long-term price of inflation and increased fiscal deficit on a macro level.

To sum up, Interim Budget 2019 will have an impact on the macro-economy of the country. Let’s see how industries will get affected. 

Budget 2019: Impact on the economy at a macro level

Interim Budget 2019 will have an impact on the macro economy of the country. Let’s see how industries will get affected.

Impact of Budget 2019 on the economy

The run-up to this year’s Budget was marked by speculation over how far the Narendra Modi government was willing to go with budgetary concessions, this being an election year.

The question everyone was asking was whether the government would breach norms to announce tax sops with an eye on the polls, or would it opt for a vote-on-account to enable normal functioning till the full Budget was passed by the next elected government, which may or may not be headed by PM Modi?

Overview

In the end, interim Finance Minister Piyush Goyal departed from tradition to announce several direct tax concessions, reaching out to the middle class and individual taxpayers. There were goodies for others too: favourable loan terms for small businesses, loan waivers for farmers, direct cash transfers to small farmers, and benefits for the unorganised sector and senior citizens. 

The Budget was, by and large, received well. The corporate sector, despite not having received much in terms of largesse, said it “touched the right notes for stimulating demand and growth in the economy”, and that it addressed the “major consuming sections of society such as farmers, the middle class, and unorganised sector workers”.

Goyal’s is an Interim Budget, and will stay relevant for about four months till the new government presents the full Budget around June for the rest of the year; it may or may not accept the proposals in the Interim Budget. However, as seen in the past, a new government is often loath to roll back populist schemes such as tax rebates as no one wants an ‘anti-people’ tag, though it is more likely to scrap unrealistic schemes.

Unlike other years, the government did not release any Economic Survey the day before the Budget fleshing out the situation under various economic issues. However, Goyal’s speech covered this in bits and pieces. Let’s look at a few of the main ones that could probably be retained, if tweaked, in the full Budget later this year, and which will have an impact on the macro economy of the country.

Related: Key takeaways of Union Budget 2019

1. Employment generation

The Interim Budget refrained from announcing any direct employment generation programme, instead preferring to highlight the ecosystem that could help create jobs. Goyal’s speech was an indication. “With job seekers becoming job creators, India has become the world’s second largest startup hub,” he said. 

The following steps were proposed in a bid to help create ‘job creators’:

  • The Budget announced a national programme on artificial intelligence;
  • DIPP to be renamed Department for Promotion of Industries and Internal Trade, with government projects now being required to source 25% of requirements from SMEs;
  • MSMEs and traders being empowered through one-hour loan sanctions up to Rs 1 crore;
  • A new department, that of fisheries, to be created to push rural job creation;
  • 10% additional reservation announced for the poor for government jobs and education;
  • Rs 60,000 crore allocated for MGNREGA (job-creating rural projects), and Rs 19,000 crore for Gram Sadak   Yojana (rural roads projects).

Upside: There are not many direct announcements related to employment in the Interim Budget, but it does address the issue via more incentives and concessions to several major sectors of the economy, such as infrastructure, real estate, and agriculture. Take agriculture; India’s agrarian economy is labour-intensive, accounting for millions of jobs. Growing it through direct income support and easy loan schemes and interest subvention measures can generate rural employment, apart from building prosperity.

Downside: One criticism that has been levelled at the Modi government over the past few years relates to job creation; critics of the PM say he has not delivered on his pre-poll promise of creating two crore new jobs every year if his party was voted into power in 2014. There is little clarity on the level of success as no official data on the state of employment or unemployment been released in recent years. This Budget also stayed away from citing data, keeping alive suspicions that the announcements were made keeping in mind the elections. 

Related: Budget 2019: What it means for taxpayers 

2. Infrastructure

Amidst taunts by opposition MPs, Goyal outlined a vision statement that he said would guide the government for the next 10 years – till 2030. Called Vision 2030, the list was topped by the infrastructure sector. “The first dimension of this vision will be to build physical as well as social infrastructure for a $10-trillion economy,” he said. Proposals related to infrastructure were not clubbed under one head, but spread out under different heads. A collective list is given below: 

  • Highest Budget allocations for rail, road, and rural infrastructure (including rural roads and rural housing);
  • Under road infrastructure, plans for completion of 9000 km of National Highway and 3.7 lakh km rural road construction;
  • Upgrading 600 railway stations;
  • Dedicated funding for affordable housing; one crore houses to be built under Pradhan Mantri Awas Yojana, divided equally between urban and rural areas;
  • Target to build 100 Smart Cities with an emphasis on solar facilities, smart roads, and smart infrastructure;
  • Two crore more toilets to be constructed under Swachh Bharat Mission this fiscal;
  • Increased investment for education and health infrastructure;
  • A new scheme launched to revitalise the school system by 2022;
  • New tunnel in Sera Pass announced to promote tourism, especially in north-east India;
  • Top 10 tourist sites to be promoted through increased marketing, branding, and private funding.

Related: Vote-on-account: What you need to know? 

Upside: Incentives/concessions to the real sector not only create jobs, they are also a step towards housing for all. Incentives include exemption of income tax on notional rent on a second self-occupied home and increase the benefit of rollover of capital gains from investing in one residential house to two for capital gains up to Rs 2 crore, though only once in the lifetime of a taxpayer. A similar benefit has been extended to unsold inventory. 

There are several other tax-related incentives for the construction industry, which promotes backward and forward linkages between some 248 other economic activities. Growing it creates jobs. 

Downside: While Goyal’s Budget speech covered some flagship programmes such as Pradhan Mantri Awas Yojana, it was silent on the Smart Cities initiative. Also, the interim Budget was vague on the direct or indirect increase in allocation or investment in sectors other than housing, where direct and indirect fiscal benefits are likely to lead to real growth; as for others, it is all nebulous.

Related: Budget 2019 makes bank deposits and realty investments shine again 

3. Farm sector

Noting that “there is a need for providing structured income support to poor landholding farmer families”, Goyal’s Budget addressed the account growing discontent over depressed farm income to announce several schemes:

  • A new direct income support scheme was announced for farmers, called Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), under which Rs 6000 will be deposited in the bank accounts of every farmer family owning cultivable land up to two hectares. The scheme will cost the government Rs 75,000 crore for 2019-20, and is touted to benefit around 12 crore small and marginal farmer families;
  • Additionally, farmers engaged in animal husbandry and fisheries who have availed of loans through the Kisan Credit Card but have been affected by natural calamities will get a 2% interest subvention, and an additional 3% interest subvention in case of timely repayment;
  • A new scheme, National Kamdhenu Aayog, has been introduced for “the sustainable genetic upgradation [sic] of cow resources and to enhance production and productivity of cows” (Rs 750 crore has been allocated for the National Gokul Mission for this);
  • In a new initiative, a separate Department of Fisheries will be created to support the livelihood of about 1.45 crore people engaged in this sector;
  • MSP increased 1.5 times the production cost for all 22 crops to help farmers double their income.

Upside: The Budget was clearly alert to the need for rural job creation. This is apparent from budgetary support through interest subsidies on Kisan credit card loans, crop insurance schemes, and continuing with existing subsidies on farm inputs (such as fertilisers). 

Alongside, the annual grant of Rs 6000, to be paid in three equal instalments to small and marginal farmers (with holdings below five acres), under the newly-launched PMKSY is a welcome move as it provides some security against nature’s fury and crop failures. It may seem a paltry amount, but it is a good beginning as some 12 crore farmers are expected to benefit. 

Building rural prosperity, i.e. creation of more disposable rural incomes, will push demand for manufactured goods and services. This will lead to capacity creation/augmentation, as well as new investments, in the manufacturing sector. Higher capital formation in the hinterland will push economic growth.

Downside: Despite Prime Minister Modi’s stated push for startups and tech companies, the interim Budget gave India’s agri-tech sector a complete go-by: it did talk of expanding rural industrialisation using modern industrial technologies, but it was vague; there was no policy announcements like tax relief or fund support for startups in this sector, or even schemes to attract investments in agri-tech. 

This is regrettable; India’s agri-tech could do with budgetary support for infrastructure such as innovation labs in states, startup fund, R&D opportunities, and cold chain infrastructure.

During Modi’s visit to Israel in January last year, the two sides signed a five-year cooperation pact to upgrade India’s water use and agricultural practices through Israeli knowhow. There is already a three-year (2018-20) bilateral programme for setting up water- and agri-related research and tech centres in India. But the Interim Budget has not allocated funds for any project – if at all there are any – under either of the two programmes.

4. Social sector

Asserting that his government is aiming to bring about development and bridge the urban-rural divide, even as it takes care to ‘preserve the soul of villages’, Goyal said, “Efforts have been taken to bring full representation for economically weak backward classes by giving them reservation in jobs and education.”

Some of the measures have been mentioned earlier – job/education reservation for the poor, rural road construction, MGNREGA, affordable housing etc. Some of the others are:

  • Every poor household to get electricity connection by March 2019 under the Saubhagya Yojana;
  • Two crore free LPG connections under Ujjwala Yojana next year, (six crore connections have already been distributed);
  • Outlay on SC and ST increased from Rs 62,474 crore in the revised estimate of 2018-19 to Rs 76,800 crore in the Budget estimate of 2019-20;
  • Proposal to launch a pension scheme for the unorganised sector workers with a monthly income of Rs 15,000; called Pradhan Mantri Shram Yogi Maandhan; the scheme will ensure a monthly pension of Rs 3000 after retirement, in lieu of a minimum monthly payment between Rs 55 and Rs 100 depending on age;
  • Tax benefit totalling Rs 18,500 crore is proposed for an estimated three crore middle-class and small taxpayers comprising self-employed, small businesses, salary earners, pensioners, and senior citizens;
  • Income tax exemption up to Rs 5 lakh, and up to Rs 6.5 lakh gross income investments made in provident funds, specified savings and insurance etc.

Upside: A pension scheme for 85% of the country’s workforce – the unorganised sector – is a social security measure for them, which promises to lift emotional well-being and reduce the incidence of poverty in old age, apart from boosting demand in the economy. Tax cuts too will boost demand and their positive impact will be felt across sectors. 

Downside: How will the money be transferred to a worker in the informal sector? Most do not have bank accounts. In the absence of any clear-cut plan on this, the announcement runs the risk of boiling down to an empty pre-poll gimmick.

Furthermore, Moody’s strikes a warning of a different note: the credit rating agency says that while farm sops and tax cuts will give a fiscal stimulus of about 0.45% of the GDP, it will also lead to loans getting costlier in future. 

Against this backdrop, let us have a look at the income tax changes of the Interim Budget, and how it affects your personal finance and corporate finance at large. 

SEBI relaxes overseas share transfer norms

SEBI has made it easier for foreign residents to transfer shares to their immediate relatives in India by relaxing the documentation requirements.

Now non-residents can transfer shareholdings to India hassle-free

The Securities and Exchange Board of India (SEBI) has relaxed the requirements in case of share transfers made by non-residents (OCIs, PIOs, NRIs) to immediate relatives. Until now, non-residents and foreign nationals had to furnish a copy of their Permanent Account Number (PAN) to register the transfer of equity shares made by them in favour of their immediate relatives. 

Under the Listing Obligations and Disclosure Requirements of the SEBI, both the transferee and the transferor had to furnish copies of their PAN to the listed company whose shares were being transferred. The change has clearly been made to help non-residents, many of whom don’t have a PAN and faced genuine difficulties in transferring shares.

Related: Clueless about investing in stock markets? Here are some options 

However, this will be applicable only for transfers made after the 1st January 2016 and solely on non-commercial transactions. In other words, non-residents can only gift the shares to recipients. Additionally, the non-resident will have to provide a valid alternative document that authenticates the residence status and identity of the person.

Related: All about IPOs in India 

Who are the non-residents affected by this change?

Overseas Citizens of India (OCI) are citizens of another country who have Indian origins and can, therefore, hold a special OCI document that allows them to live and work in India indefinitely. It now includes Persons of Indian Origin; this status was withdrawn after it was merged with OCI on 9th January 2015. Non-resident Indians (NRI) are Indian citizens who are staying overseas and have an uncertain duration of stay overseas.

What is a transfer of shares?

Transfer of shares is the transfer of title to shares by one party to another. Shareholders are the owners of the company, so with a transfer of title the ownership of the company also changes, to the extent of the transferred number of shares. It is a deliberate and voluntary action by both parties and is done for an adequate consideration, so share transfer has to be through sale or gift and cannot be inherited. Stamp duty is paid on the market value of the shares transferred. 

Related: How and when to de-risk one's investment portfolio

What is SEBI and who is an ‘immediate relative’ for the purpose of share transfer?

SEBI (Securities and Exchange Board of India) is a government body that regulates the securities market in India. It keeps a lookout to detect any malpractices or wrongdoings in the market and provides guidelines to facilitate the correct functioning of the securities market. Its definition of ‘immediate relative’ helps in taking action against malpractices like insider trading. For the purpose of share transfer, the spouse of the transferor, his or her parents, sibling(s), and children are considered to be immediate relatives.
 

Aadhaar linking with PAN now mandatory for filing Income Tax Return

The Supreme Court’s ruling makes linking of PAN and Aadhaar mandatory for filing IT returns. How this linking is done and why it is necessary, along with the effects and the provisions of the Act it relates to.

Aadhaar linking with PAN now mandatory for filing Income Tax Return

The Supreme Court has ruled that linking of Permanent Account Number (PAN) with the unique national ID (Aadhaar) is now mandatory for anyone looking to file their Income Tax (IT) Return. The bench, comprising Justices AK Sikri and S Abdul Nazeer, effectively upheld Section 139AA of the IT Act that had earlier made this linking mandatory. 

The court’s decision came in response to an appeal filed by the Centre against a Delhi High Court ruling that allowed two persons to file their IT returns without linking their Aadhaar and PAN. The two assessees had pointed out to the High Court that the IT e-filing website didn’t have the option to opt out of Aadhaar linking, which was hampering their tax filing exercise. It was in response to this petition that the Delhi High Court had allowed the filing of return without the linking.

Related: What are the new Aadhaar features- virtual ID and limited KYC and how do they work? 

The bench noted that the assessment of the aforesaid two people for assessment year 2018-19 had already been completed and, therefore, made it clear that from assessment year 2019-20, IT return shall be filed in line with the judgment passed by the apex court. In September 2018, the Supreme Court had declared Aadhaar as constitutionally valid but deemed that quoting it was not mandatory to open/maintain bank accounts, mobile phone connections, and for school admissions. 

Related: Have a look at new PAN rules that is effective from December 5 

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What does Section 139AA of the Income Tax Act say?

Section 139AA says that people who are eligible to apply for an Aadhaar number shall do so and quote the Aadhaar number in the application form for allotment of PAN and while filing the IT Return. It further says that if the person does not possess an Aadhaar Number, the enrolment ID of Aadhaar application form issued has to be quoted in the application for PAN or the return of income, as the case may be.

How can one link their PAN with Aadhaar?

One can link one’s PAN with Aadhaar by going to the appropriate website, with or without logging in. If one chooses not to log in, they have to click on the link that says ‘Link Aadhaar’ and enter the PAN, the Aadhaar number, and their name as it appears on the Aadhaar card. If logging in, one has to go to the profile settings and click on ‘Link Aadhaar’. The PAN details will appear and the person has to compare the same with his or her Aadhaar details. If all the information matches, click on the ‘Link Now’ option.

Related: What you need to know about linking your Aadhaar and PAN card? 

Who is affected by this ruling?

It will affect anyone who’s required to file an IT return in India. For such individuals, having an Aadhaar becomes automatically mandatory. Aadhaar can be applied for by any individual, irrespective of age or gender, provided the person is resident in India and satisfies the verification process laid down by the Unique Identification Authority of India (UIDAI). Besides NRIs and PIOs, even foreigners living in India can apply for an Aadhaar card.

Related: If you can score 8/10 on these question, you're an Aadhaar Card pro

Why should PAN and Aadhaar be linked?

The linking will help the government weed out fake PAN cards and eliminate tax evasion or other fraudulent activities. In fact, it can be helpful in identifying tax evaders as well. Laundering of black money can also be curbed once PAN is linked with Aadhaar.

Budget 2019 makes bank deposits and realty investments shine again

The Interim Budget 2019 offered a bouquet of sweeteners to taxpayers across socioeconomic classes.

Budget 2019 makes bank deposits and realty investments shine again

Certain investment incentives announced by Finance Minister Piyush Goyal while presenting the Interim Budget 2019 are expected to make old-school bank deposits and real estate investments lucrative again.

The Budget has proposed an increase in the limit of tax deducted at source (TDS) on interest earned on term deposits, savings accounts, and other deposit schemes with banks or post offices. The limit will be quadrupled from Rs 10,000 to Rs 40,000 for a financial year. The same has been increased to Rs 50,000 on interest income earned by senior citizens.

Term deposits worth an estimated Rs 24 crore were placed with various banks as of 2018, with an average account balance of Rs 2.75 lakh. With the proposed raise on the TDS limit, banks are likely to see a surge in term deposits, according to some experts. 

Related: 5 Announcements in the past 5 Budgets that impacted your finances

For taxpayers, the new proposal means no TDS will be deducted from the interest income up to Rs 40,000. However, the interest income would still be taxable at the hands of individuals as per the current tax laws.

Earlier, it was mandatory for the taxpayer to submit Form 15G to avoid TDS in case the interest income exceeded the threshold of Rs 10,000. In case they missed out on submitting it, then they were liable to a TDS on the interest above Rs 10,000. Under such a scenario, the individual would have to claim a refund of this TDS in case the income was below the taxable limit. The latest proposal provides relief to small depositors and non-working spouses.

A higher limit of Rs 40,000 means that TDS will not be deducted till an individual’s interest income from bank FDs and post office deposit schemes crosses this limit.

Furthermore, the Budget also proposes an increase in the threshold of TDS paid on rental income from Rs 1.8 lakh to Rs 2.4 lakh, which could come as relief to small taxpayers.

Related: Key takeaways of Union Budget 2019 

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Real estate investments will look up

Proposed changes in the real estate sector could make the asset class attractive for a certain segment of investors. Over the long term, real estate is expected to offer substantial returns, thanks to a growing middle class, potentially higher income levels, and rapid urbanisation.

Capital gains from sale of real estate assets of up to Rs 2 crore can now be reinvested in two separate real estate assets under Section 54. This provision is allowed only once for any assessee; however, it presents the opportunity to invest the gains across attractive real estate options in multiple properties and locations, allowing owners/investors to diversify risk and return on the investment portfolio.

Additionally, tax on ‘notional rent’ on self-occupied property will no longer be applicable for owners of multiple homes. This will reduce the tax liability of such homeowners and families that live in separate locations. 

Similarly, tax on notional rent on unsold real estate inventory will be exempt for two years from the end of the year in which the project has been completed, bringing some relief to developers.

There are talks to further reduce the GST on purchase of new house property to 8% from the present 12%, making real estate investments a little more affordable for first-time buyers. It will allow resellers and owners of multiple properties to better invest their funds, save tax, and make handsome gains. Here's an expert's guide to buying real estate in 2019.

Pradhan Mantri Shram-Yogi Maandhan: A mega pension scheme to cover workers in India’s unorganised sector

A look at the Pradhan Mantri Shram-Yogi Maandhan scheme declared in the Interim Budget 2019 that promises to provide retirement benefits to India’s huge unorganised labour workforce on a contributory basis.

radhan Mantri Shram-Yogi Maandhan: A mega pension scheme to cover workers in India’s unorganised sector

As is typical of most pre-election Budgets, the Interim Budget of 2019 announced a massive benefit scheme targeted at a major section of the Indian society. India’s unorganised sector, which includes anything from rag-pickers and rickshaw pullers to bidi-makers and daily labourers, will be the beneficiary of what is arguably the world’s largest pension scheme. 

The Pradhan Mantri Shram-Yogi Maandhan (PMSYM) is designed to offer a pension of Rs 3,000 per month to anyone over the age of 60 from the unorganised sector. It will include workers who have a monthly income of up to Rs 15,000. 

An unorganised worker joining the scheme at the age of 18 will have to contribute Rs 55 every month, while a worker joining at the age of 29 will have to contribute Rs 100. This will be matched by the government with an equal contribution. 

Related: Retirement planning for pros: National Pension Scheme 

Over 90% of India’s workforce is engaged in the unorganised sector and they contribute as much as 50% of the GDP. The PMSYM scheme has been welcomed because it promises to provide social security to a sizeable section of the country’s workforce and it will also generate a large amount in contribution.
At the same time, the scheme has been criticised as a last-ditch effort to woo voters, while the Budget in general has been dismissed for not addressing employment generation, increasing public investment, or improving the financial health of people. 

Apart from this scheme, the budget made big allocations towards the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Pradhan Mantri Gram Sadak Yojana (PMGSY).

Related: Avoid these mistakes when calculating your retirement corpus 

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What is Pradhan Mantri Shram-Yogi Maandhan?

PMSYM is a scheme aimed to offer financial security to people who have no economic backup as they are generally not part of any pension scheme. It will allow workers from the unorganised sector to open pension accounts and deposit money in it till the age of 60. Anyone aged 18 or above can join the scheme, provided their monthly income is less than Rs 15,000. 

The Interim Budget has set aside an amount of Rs 500 crore for this scheme and it is expected to provide support to over 10 crore workers from the unorganised sector.

Why does the unorganised sector need this scheme?

Workers in the unorganised sector, particularly those earning a monthly income of less than Rs 15,000, do not fall under any pension scheme. These are the people who earn daily wages and the saving habit is generally not ingrained into them. Those earning above Rs 15,000 are eligible under the Employee Provident Fund (EPF) scheme, so PMSYM will take care of the people who are left out of the EPF bracket. 

Related: How well are you planning your retirement? Take this quiz to find out 

What are the major issues this budget didn’t address?

It was noted that the Budget did not directly address the issue of the ‘45-year-high’ unemployment rate, nor did it suggest any organised and structured approach towards employment generation. The government was criticised for not being able to meet the fiscal deficit target for 2018-19, as the current account deficit stands at 2.5%. It is felt that the allocations on welfare have not been complemented by allocations on public investments. 

Tax refund claims based on bogus investments has Income Tax department on alert

As a taxpayer, find out how the Income Tax department plans to root out bogus claims for tax refunds

Tax refund claims based on bogus investments has Income Tax department on alert

An income tax (IT) refund is that amount of tax a person has deposited (or has been deducted and deposited from his or her income), but is over and above the tax that was actually payable during the given financial year. This happens when a person’s tax deducted at source (TDS) was particularly high for a particular year, or the person is eligible under various tax-free expenses and investments. 

Income Tax dept taking action against refund claims based on bogus investments


Again, in such a case, the difference between the TDS deducted and the revised tax liability would be the IT refund. A bogus tax refund is when the person claims to be eligible for tax-free deductions based on forged or incorrect documents. Such incorrect documents may be a fake bank savings certificate or payment proof of a housing loan that wasn’t even taken.

Related: Are you an NRI? Here’s how you can claim a TDS refund 

Fictitious investments to evade tax

Under the Income Tax Act, Section 80C, together with Sections such as 80CCC and 80CCD, list various types of expenses and investments that effectively reduce our taxable income and subsequently our tax liability. 

While 80CCC and 80CCD offer tax benefits for contributions made towards certain pension schemes, 80C is an umbrella section that encompasses various expenses and investments. Provident funds, life insurances, saving certificates and schemes, fixed deposits, children’s tuition fees, and repayment of home loan principal and bonds are some of the investments that qualify for 80C benefits. The interest paid on a home loan too is eligible for tax benefit under Section 80EE. 

If unscrupulous enough, one can conveniently prepare false documents or forge and submit them as tax-free investments to the tax deducting authorities (employers, customers etc.) and the tax department. These would be tax-free investments and expenses that don’t exist! 

Related: 8 Incomes you shouldn't miss while filing your IT returns 

The taxman cometh

The Central Board of Direct Taxes (CBDT) is aware of bogus refund claims based on fictitious investments. It unearthed such fraudulent attempts during searches carried out in various parts of Punjab, Mumbai, and Bengaluru. The CBDT recently sent a stern signal to fraudsters by saying that the IT department has introduced additional controls to screen suspect refund claims. 

One such red flag was raised when similar claims were raised from the same IP address. The department is now auto-enabled to stop refunds in case a fraudulent return is detected. 

The next logical step for the department when a suspicious return is suspected is to initiate a tax assessment. The department is generally non-intrusive, which is in line with its aim of not harassing ordinary taxpayers. However, the department is within its rights to call for a high-pitched assessment when the need is felt.

Related: 8 Myths about tax filing debunked

 High-pitched assessment and committee

An assessment is categorised as ‘high-pitched’ when the IT officer estimates that the income of the person assessed could be more than twice of what they have declared for tax purposes. The Prime Minister had asked the department not to harass genuine taxpayers, so the CBDT has devised a way to give the assessee an opportunity to question a high-pitched assessment order.

In 2016, the CBDT set up local committees to address grievances on various assessment- and taxation-related issues. Recently, it also set up a three-member committee comprising three principal commissioners, to look into the issue of irrational demands of the department using the premise of high-pitched assessment. This was in response to people coming to the CBDT claiming that they have been subject to unreasonable high-pitched assessments. Accordingly, people can now approach the committee if necessary. Last year the CBDT took action against 12 assessing officers who were found to be raising dubious high-pitched assessments.

Related: Top 6 Most Common Mistakes to avoid when filing IT returns

 On the one hand, the CBDT took exception to the fact that people indulge in forged declarations and false refund claims, and called for a change in mentality by bringing in more honesty to the self-assessment process. It has taken new initiatives to tackle this problem as well. At the same time, it also reiterated its commitment to protect honest taxpayers by giving them a platform to raise assessment-related concerns. Also, it is also very important to use your tax refund wisely, so read through this to understand the same and make your money work for you. 

The income tax department is expected to reduce the processing time from 63 days to a single day!  Read more about this

An expert's guide to buying real estate in 2019

This year seems to hold promise for developers as well as home buyers/investors, believes Amritesh, an experienced professional in Finance.

Buying real estate in 2019? Check this guide out

The real estate sector has remained subdued for quite some time now, impacted primarily by the shift in economic policies and reforms introduced in the last couple of years. In 2018, a majority of asset classes witnessed a slowdown due to the weakness in the global market and softening of the domestic market due to reforms in economic policies. 

This, along with the implementation of the Goods & Service Tax (GST), resulted in further weakening of demand in the realty sector, which was already reeling under the impact of demonetisation. Developers were again caught off-guard after the NBFC liquidity crisis post the IL&FS debacle, and the introduction of RERA (Real Estate Regulations Act). 

However, 2019 seems to hold promise for developers as well as home buyers/investors. With the elections due in summer, the first half of the year may account for slow growth. But things are expected to gradually pick up in the latter half of the financial year. Eyes will also be on the Interim Budget 2019 as it could offer additional relief to the industry. 

The real estate sector could offer a win-win situation for builders as well as investors, as the market offers a great platform for both to explore in the coming months. Let’s dig deeper into the prospective scenarios for both entities.

Related:  Planning to invest in real estate? Here are few things you must know

Builders’ perspective

Coming from a difficult period post demonetisation, the scenario is expected to gradually change for realty players. GST and RERA are expected to infuse greater transparency and accountability, paving the way for institutional investors to explore the potential within the industry. This would also help to fill the void created by the NBFC crisis. 

Developers will also benefit from the focus on the infrastructure development and clearance of pending projects after the elections as the new government (irrespective of who comes into power) will seek to push economic growth. In fact, GDP for 2019 is expected to grow in the range of 7.3% to 7.5% as per estimates. 

Commercial spaces are also expected to witness growth, especially in the top-tier cities, as the fundamentals look strong and the economy is expected to do well. Organisations will naturally be looking to expand their infrastructure for improved business opportunities. 

Related: Confused in Real Estate Investment? Here are 6 myths you can stop worrying about  

Builders will also look at clearing inventory in the residential sector, along with adjustments for new inventory, which should allow prices to remain competitive. Developers may also be able to reduce costs as GST is not being levied on projects that receive a ‘completion certificate’. 

The government is encouraging the development of affordable housing projects and extending tax benefits under Section 80-IBA to builders and promoters. This is aimed at providing homes to the economically weaker sections of society. RERA is also expected to discourage casual developers, ensuring fairness and a cleaner mode of business for all.

However, the industry has to overcome liquidity issues and ensure compliance with the latest regulations. The upcoming year is expected to offer significant opportunities, so long as developers are prepared to overcome the challenges coming their way. 

Related: Income Tax dept. to question cash transactions in real estate deals 

Buyers’/investors’ perspective

For potential buyers, this could be the perfect opportunity to buy a new home as prices are expected to remain subdued in most cities. The introduction of RERA, along with GST benefits, will provide a favourable environment to invest in real estate. 

Furthermore, tax deductions on home loan interest repayment, along with additional benefits under credit-linked subsidy schemes (CLSS) for economically weaker and middle-income groups, will provide an ideal platform for home buyers.

RERA also brings transparency into the sector as noncommittal developers will eventually be eliminated from the Industry, ensuring a clean platform with enforced commitments to meet the promises made to buyers. The upcoming elections and Budget 2019 could offer additional incentives for investing in real estate. 

In terms of return on investment, one may not reap great short-term returns but with reforms falling in place and the industry settling down, demand for real estate is expected to witness an upswing. Regulatory reforms backed by government initiatives are definitely going to help the industry gain momentum. 

Related: Simple ways in which you can diversify your financial portfolio 

The overall scenario

The industry is expected to shrug off the slowness, with growth expected to gain momentum in the last quarter of the year. The decision of SEBI (Securities and Exchange Board of India) to permit REIT (Real Estate Investment Trust) to allow investors to invest in the realty sector is expected to resolve the liquidity issue. 

Developers will also look to utilise the tax benefits and incentives post the reforms to lower costs and build sustainable business models. The demand for housing and infrastructure is expected to boom as the economy is projected to grow at a good pace. Increase in income accompanied by an improved standard of living will usher in the demand for homes. 

For home buyers, the current scenario provides a good opportunity to invest in a house and enjoy the tax benefits and incentives offered against the same. Comparatively lower cost is one more factor that investors can consider while purchasing a new home in 2019. 

Related: Real Estate deals by non-residents under the tax net 

After years of stagnation, the real estate industry is expected to overcome the odds. The election period may witness some slowdown, but irrespective of the outcome the industry is expected to do well in the near future. 

About the author: Amritesh Sinha is an experienced professional in the fields of HR and Finance. Currently, working as HR Consultant and is the Founder of Wealthtech Speaks Blog. Previously, he has been associated with one of the Top IT Company in India. He holds a dual masters degree, MBA (HR) & M.Com (Finance). He has also undergone Executive Human Resource Program (EPHRM) from IIM-C and CS (Exe) from ICSI respectively.

Disclaimer: The opinions expressed in this article by Amritesh Sinha are his own, and do not necessarily reflect those of TomorrowMakers.com or its owners.
 

 

World Cancer Day: Cancer facts you should know

With World Cancer Day around the corner, it is time to take cognisance of this dreadful disease, build awareness, and learn how we can reduce our risks

World Cancer Day: Cancer facts you should know

The number of people being detected with cancer in India is alarming. Most recently, you would have heard of celebrities fighting their battle with cancer. From Sonali Bendre to Irrfan Khan to Tahira Kashyap (Actor Ayushmann Khurrana's wife) the disease is unforgiving and impartial. We hope you never have to deal with it, but it is important to be aware, alert, and proactive if it does strike you.

World Cancer Day is the perfect time to spread awareness, learn how you can live a healthy life, and take all the precautionary measures you possibly can.

Here are some cancer-related facts that will shock you and push you to spring into action:

  • The deadly disease has more than doubled in India over the last 26 years.
  • Cancer is the second most common cause of death in India. The top cause is cardiovascular disease.
  • One woman dies of cervical cancer every 8 minutes in India. More women in India die from cervical cancer than in any other country. 
  • For every 2 women newly diagnosed with breast cancer, one woman dies of it in India. 
  • 2.25 million people are estimated to be living with the disease.
  • 11,57,294 lakh new cancer patients are registered every year in the country.
  • Males are 9.81% at risk of developing cancer before the age of 75, while females have a 9.42% risk.
  • There were 7,84,821 deaths due to cancer in 2018 (Men: 4,13,519, Women: 3,71,302).
  • 3,17,928 deaths were caused in 2018 due to usage of tobacco in India.
  • On an average, 2500 people die every day in India due to tobacco-related diseases.
  • Risk of dying from cancer before the age of 75 is 7.34% in males and 6.28% in females.
  • Oral cavity and lung cancer account for over 25% of cancer deaths in males.
  • Breast and oral cavity cancer account for 25% of cancer in females. 
  • The Indian government has identified four cancers that constitute 41% of all cancer cases. These are breast cancer, cervical cancer, oral cancer, and lung cancer.

Related: Is your health insurance plan cancer-proof? 

Tips on living a healthy life

These alarming numbers prompt the question: How can one live a healthy life and beat the odds of being affected by cancer?

  • Do not use tobacco in any form. It is the highway to cancer. It can lead to cancer of the lung, mouth, kidney, bladder, and cervix.
  • Eat a balanced diet. Cut down consumption of salty and sweet foods, and sugary drinks. Avoid processed foods. Have more leafy vegetables, fruits, legumes and proteins, and less red meat. 
  • Eat foods that can lower your risk of cancer. Increase consumption of broccoli, carrots, beans, cinnamon, nuts, flaxseeds, citrus fruits, olive oil, etc.
  • Limit consumption of alcohol. Don’t have more than three drinks a week. 
  • Lead an active lifestyle. Ensure you get some exercise every day for 30 minutes. Choose whatever activity you like. Take a brisk walk, swim, dance, do yoga, or hit the gym.
  • Avoid taking supplements as much as possible. Try to meet nutritional needs from natural foods. This is because supplements can have unexpected adverse side effects.
  • Wear sunscreen 20 minutes before you step out. Exposure to sun is the number one cause of skin cancer. Cover yourself well. Use hats and sunglasses to minimise exposure.
  • Avoid tanning beds like the plague. They can give you the ‘just returned from a tropical island sun-kissed look’, but they are also an open invitation to cancer. Tanning beds are more damaging than natural sunlight. 
  • Get vaccinated for Hepatitis B and HPV (human papillomavirus). Practice safe sex and never share needles. Sexually transmitted diseases can lead to liver cancer, and cervical and genital cancers.
  • Regularly get yourself checked. Learn how to do a breast self-examination. Get yourself screened by a doctor annually. You have a much higher chance of beating cancer if it’s caught early.

Related: 200+ Types of Cancer | Cancer Symptoms, Stages and Treatment 

Get health insurance cover 

The financial cost of getting cancer treatment done can break the bank. A comprehensive health insurance plan with a rider for critical illness can help mitigate the financial risk that comes along with an ailment as serious as cancer. 

Related: Have you bought the right health insurance policy? 

Most insurers have a minimum three-year waiting period before the benefit of the policy kicks in, which makes it important to be proactive and invest in a good health plan pronto. Learn why a critical illness rider is imperative and if your health insurance plan is adequate to cover critical illness. 

This World Cancer Day, educate yourself about the disease and the preventive measures you can take to minimise risk. Do not forget to share this information with your friends and family to help build a world that is ready to fight and win against cancer.