The ruling government will be presenting the interim union budget on 1 February 2019. An interim budget is the one presented by a ruling government prior to the end of their term. The government is expected to decide the amendments cautiously; they have to ensure that the changes proposed to match the expectations of the voters while at the same time are not so radical as to invite the criticism from the other parties.
1. Section 80C limit due for a raise in Budget 2019
The limit of Rs.1.5 lacs was last revised in Budget 2014-15. We can expect the government to consider revising this limit, with the due passage of time, this limit no longer holds good. The Industry chamber CII has also urged the government to increase the 80C limit to Rs 2.50 Lacs. An increase in section 80C limit will help provide more room for tax saving.
2. Increase in the income tax slabs
It is expected that the government will agree to the ask of the industry chamber CII on increasing the income tax basic exemption limit in Budget 2019. CII has urged to double the basic income tax exemption limit to 5 lacs from the current 2.5 lacs.
Currently, income up to 2.5 lacs is exempt from income tax for individuals. Income between 2.5 – 5 lacs attracts 5% tax, while that between 5-10 lacs is levied with 20% tax. Income above 10 lakh is taxed at 30%. This is the income tax slab for individual tax payers for FY 2018-19.
The industry body has suggested that income below 5 lacs should be exempt while between ₹5-10 lacs should be taxed at a lower rate of 10%. For those individuals having income between ₹10-20 lacs, the tax rate should be 20%, and those earning over ₹20 lakh should be taxed at 25%.
We can also expect a reduction in the corporate tax rate to 25% from 30% irrespective of the turnover.
3. New NPS rules to be effective after the Budget 2019
Finance Bill 2019 will have a new set of rules for National Pension Scheme (NPS) for FY 2019-20 and onwards. The government has recently approved the increment in the share of NPS contribution from 10% to 14% for the central government employees. In addition, the withdrawal of NPS will be 60 % tax-free from the present 40%. The remaining 40% though must be mandatorily put into an annuity.
We can anticipate that these provisions will include all taxpayers; central government employees, private sector employees and the self-employed as well. The fine print of the Finance Bill 2019 will help clarify the conditions for eligibility under section 80C for investments made to the TIER 2 account. These reforms in Budget 2019 will give a lift to NPS making it an effective tool for retirement planning for individual taxpayers.
4. Clarity on the Long-Term Capital Gains (LTCG) on equity investment
In the present scenario, any switch within the same scheme from debt to equity in ULIPs and NPS or any fund reallocation between them is not liable to taxation. But shifts between the schemes like in the case of a shift from a dividend option to a growth option or vice -versa, is liable to capital gains tax.
We are expecting the government to bring parity between the schemes and make these tax savings avenues more attractive for individuals in the Budget 2019.
5. Extending HRA benefits to other (non-metro) cities in Budget 2019
Salaried individuals, especially those working in Bangalore, Pune, Hyderabad, and Gurgaon location, are hopeful of the Union budget 2019. They expect their cities to be re-categorised as Metro cities for HRA purposes. Currently, the individuals are allowed 40% of their basic salary for calculation of exempt HRA, which they expect to rise to 50% of the basic salary.
6. Increase in relief on Housing Loan in Budget 2019
It is expected that the limit of the housing loan will be enhanced to Rs. 2.5 Lacs. This change will help many individuals to save a significant amount of tax through housing loans.