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Income Tax Changes 2019: These 10 major changes can directly impact your personal finances

In 2019, the central government presented two Union Budgets having income tax-related announcements which can impact your personal finances. Here we will explain to you the major tax changes that happened this year and its impacts. 
Dec 27, 2019 16:24 IST
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Income tax changes 2019
Income tax changes 2019

In 2019, the central government presented two Union Budgets. First in February, the 'Interim Budget' and the second in July, the 'Full Budget'. Both the budgets have income tax-related announcements. These announcements can impact your personal finances. Here in this article, we will explain to you the major tax changes that happened this year and its impacts. 

 # You can quote Aadhar instead of PAN

On July 5, 2019, the current Finance Minister, Nirmala Sitharaman, announced that Adhar can be used instead of PAN wherever attaching PAN is mandatory. This is done so that the taxpayers who don’t have PAN can directly use Aadhar number to file returns. 

Instances where you can quote Aadhar instead of PAN:

  1. To open a bank account.
  2. Landlord’s Aadhar number instead of PAN number to the employer for the exemption of HRA (Landlord has either linked PAN to Aadhar or has not obtained PAN yet).
  3. To avoid higher TDS deduction on interest earned from a Fixed Deposit from this financial year, individuals and senior citizens can give their Aadhar numbers instead of PAN to their banks for  Form 15G(Individuals)/ Form 15H(Senior Citizens). However, Form 16A given to you by your bank will reflect Aadhar number instead of your PAN. 
  4. When switching a job in the middle of the year, an individual is required to file Form 12B to furnish details of the previous employer to the current one. It helps the current employer to deduct the correct amount of TDS from future payments. Here, an individual can quote his Aadhar number instead of PAN. 
  5. While buying a property it is compulsory for the buyer to deduct TDS before making any payment to the seller-provided that the value of the property exceeds Rs. 50 lakh. Form 26QB is used by individuals to file TDS return where after the new income tax laws, individuals (Buyer/ Seller) can quote either Aadhar Number of PAN.
  6. Aadhar number can be used instead of PAN to submit investment declaration Form 12BB along with proof of actual investments to the employer to avoid higher TDS. However, Form-16 which your employer issues must reflect your Aadhar number instead of PAN.

What is TDS?

TDS stands for 'Tax Deducted at Source' and is a medium of collecting Income Tax in India under the Indian Income Tax Act of 1961. TDS is applicable to salary, interest earned on several financial investments, etc. It is managed by the Central Board for Direct Taxes (CBDT) and is a part of the Department of Revenue, which is managed by the Indian Revenue Service (IRS). TDS is collected to keep the revenue source for the Government stable round the year also prevents people from evading taxes.

How to Calculate TDS on salary?
You can calculate TDS on salary by reducing the exemption from total annual earning as specified by the Income Tax department. In the case of tax exemption, the employer is required to obtain a declaration and proof from the employees to approve a tax declaration.

Below-mentioned categories can be considered for tax exemption:

  1. House Rent Allowance: An employee can declare  House Rent Allowance from the employer if he is paying towards accommodation as rent.
  2. Conveyance Allowance: In case if your employer provides you with such allowance, you can declare them for the tax declaration.
  3. Medical Allowance: If your employer provides you with medical allowance, you can declare and produce medical bills for tax exemption.

# No tax if your net taxable income is less than Rs 5 Lakh

The then Finance Minister Piyush Goel announced in the Interim Budget in February 2019 that there will be no tax liability if the net taxable income is less than Rs. 5 Lakh. An individual will be able to claim the tax relief under section 87A which has been hiked from Rs. 2,500 to Rs. 12,500. 

What is the net taxable income? 
Taxable income is the amount of income used to calculate how much tax an individual/ company owes to the government in the given Financial Year. Net taxable incomes refer to the amount of income left after expenses have been subtracted under 80C and 80U of the Income Tax Act. 

How to avail of this benefit? 
As per the income tax laws, to avail of this benefit, you will need to file Income Tax Return or commonly known ITR. 
If your net taxable income exceeds more than Rs. 5 lakh than you will have to pay tax at the income tax rates applicable to your income. No changes have been made by the government in the income tax rates and slabs for Financial Year 2019-20.

How to calculate taxable income on salary? 
a. Gather your Salary Slips along with Form 16 for the current Financial Year and add every emolument such as basic salary, HRA, TA, DA, etc. that are mentioned in Form 16(Part B). 
b. All the bonuses received in the current Financial Year must be added for the income that is being calculated.
c. Now this will be your total gross salary. Subtract exempted portions such as HRA, TA(the maximum exemption is Rs. 19,200 per year), etc. provided that you have actual bills for the above-mentioned exemptions. 
d. This will be your net income from salary. 

# Filing ITR mandatory for certain cases

Budget 2019 has made filing ITR mandatory for certain cases. These are as follows:

  1. Expenditure incurred on foreign travel exceeds Rs. 2 Lakhs in a Financial Year.
  2. An electricity bill of Rs. 1 lakh or more in a single year.
  3. To claim capital gains tax exemption on investment in the house etc.
  4. The amount deposited in a current account held with a bank or co-operative bank exceeds Rs. 1 Crore.

# Higher surcharge for super-rich

As per the announcement made in Budget 2019, individuals with Rs. 2 Cr - Rs. 5 Cr income brackets will see an additional surcharge of 25%, while those having income above Rs 5 cr, will see a surcharge of 37% being levied. 
This will, however, be applicable only on your income from sources other than the capital gains. For capital gains from the stock market, a surcharge of 10% or 15% as per the Budget 2019 will be applicable. For other incomes such as salary, rental income, interest income and so on, new surcharge rates 25% or 37% will be applicable as per your income brackets.

What is a surcharge?

The surcharge is a tax on tax and is levied on the tax payable, and not on the generated income.

How it is calculated?

For example, if you have an income of Rs 1000 on which the tax is Rs 300, the surcharge would be 10% of Rs 300 or Rs 30. A surcharge of 10% is levied if an individual’s income is more than Rs. 50 Lakhs and a surcharge of 15% is levied if the income of an individual is more than Rs 1 crore. In the case of companies, it is levied if the income is more than Rs. 1 Crore.

# Tax-benefit on buying an affordable home

Another benefit of availing Pradhan Mantri Awas Yojna (PMAY) is the additional tax benefit of Rs. 1.5 Lakh on interest paid on housing loans. This was announced under section 80EEA of the income tax act. 

Terms and Conditions:

  1. The loan must be taken between April 1, 2019, to March 31, 2020.
  2. The value of the house property must not exceed Rs. 45 Lakhs.
  3. Individuals must not have any other house on the date of sanctioning the loan under his name.

What are affordable homes?

Affordable housing is for low income and economically weaker section of the society. The idea is to improve the living conditions of the poor and underprivileged and to provide their families a respectable accommodation and a safer environment. 

# Hike in TDS threshold

To provide relief to small taxpayers, the TDS threshold limit was hiked from Rs.10,000 to Rs. 40,000. Due to this hike, small taxpayers will not be required to submit Form 15G provided the total interest income doesn’t exceed Rs. 40,000. 

What is Form 15G?

Form 15G is a declaration that can be filled out by bank fixed deposit holders (individuals less than 60 years of age) to ensure that no TDS is deducted from their interest income for the Financial Year. Under existing income tax rules, banks are required to deduct tax at source in case interest on your fixed deposit, recurring deposit, etc. exceeds Rs. 10,000 in a financial year.

Points to Remember:

  1. No change in the taxability of the interest income.
  2. FD (Fixed Deposit) is fully taxable for individuals below the age of 60 years at the Income Tax rates applicable.
  3. Tax-benefit of Rs. 10,000 can only be availed in case of interest on Savings Bank Account.
  4. For Senior Citizens, tax on interest income will only be deducted if the total interest exceeds Rs. 50,000 in the given financial year.

# Relief for salaried class

Arun Jaitely, the then Finance Minister of India, during the Budget 2018 meeting proposed to offer salaried employees Rs. 40,000 standard deduction. The hike in a standard deduction by Rs. 10,000 to Rs. 50,000 is announced by the government.

This means that annual medical reimbursement of Rs.15,000 and the transport allowance of Rs.19,200 will no longer be available to the salaried individuals. However, the old deduction amounts to Rs.34,200, and the current limit is Rs.40,000, there is a difference of Rs.5,800 only.

Pensioners can also claim the standard deduction provided the pension is taxable under the head salary. 

# No income tax liability on vacant second house property

If you have a second house property that is vacant, then you will not be required to pay income tax on the notional rent.
Previously, only one self-occupied property was exempted from tax and the taxpayers have to pay tax on the notional rent if the property was lying vacant.

What is a notional rent?

Notional rent is the rent that you are assumed to have earned under the Income Tax Act, 1961 (even if you don’t actually earn any rent on a property). It was introduced to discourage taxpayers from leaving houses vacant and also to create a supply of properties for tenants.

Earlier, you can claim one house as self-occupied, but need to pay notional rent on the second house even if it is self-occupied. However, the interim budget 2019 has announced an increase in the number of houses you can claim as self-occupied to two.

#NPS Withdrawal becomes tax-free

The National Pension System (NPS) is a voluntarily defined contribution pension system in India. On 10th December 2018, GOI made NPS an entirely tax-free instrument by offering complete tax exemption to the 60% of the corpus that an investor can withdraw on maturity. Upon retirement, NPS investors have to use 40% of the corpus to buy an annuity and can withdraw 60% of the corpus. Till now, only 40% of the withdrawal amount was exempted from the tax while 20% was taxed. 

#TDS on cash Withdrawal

To discourage cash transactions, the government has imposed 2% TDS on cash withdrawal from banks, post offices or cooperative accounts from a single account provided the amount exceeds Rs. 1 CR in a year.

So, these were the major tax-changes that took place this year which can impact your personal finances.