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How your taxes and investments could be affected by the budget
February, 01st 2019

Budget 2019 will be announced today. Given that general elections are around the corner, many expect it to be a populist budget, especially considering the recent setback in state elections that the BJP faced. We asked experts if the government will bite the bullet and come out with a populist budget or stay true to the spirit of an interim budget and not introduce major changes for taxpayers. Experts feel that the budget will steer clear of sweeping announcements but could bring about minor changes. We take you through what you can expect.

Tax slabs

Of course, from a personal finance standpoint, tax relief is a major hope from the budget. But as per Gautam Nayak, a chartered accountant and partner at CNK & Associates LLP, it is better to not set the hopes too high. “The government wants people to file income tax returns, so it’s unlikely that the government will do away with the tax rate of 5% for incomes up to ?5 lakh because that may mean a lot of people may not file their returns. However, the tax slabs could increase, that could give some relief to taxpayers," he said.

Also read: 5 personal tax changes expected in Budget 2019

Even Homi Mistry, partner, Deloitte India, is of the view that the budget may not bring in big-bang reforms. “We may not see too many changes in the interim budget. The most likely change could be an increase in the exemption limit that will reduce the tax liability marginally," he added. There is also an expectation that the budget may increase the deduction limit which if it happens will reduce your tax liability. While on the one hand the budget may introduce measures to reduce your tax liability, but will it also levy taxes like the inheritance tax or the wealth tax to generate some income? As per the experts we spoke to, it seems highly unlikely. “It’s unlikely that the government will re-introduce inheritance tax or wealth tax because the cost of collection was high whereas the revenue generated was not substantial. In fact, for this very reason, these taxes were abolished after being around for several years," said Mistry.

Investments

As per newspaper reports the budget may introduce debt-oriented new schemes that will offer tax deduction to investors. However, experts feel that the budget, being interim in nature, will not announce major changes. “To include debt-linked savings scheme under Section 80C that qualifies for a deduction, the government will have to amend the tax laws and given this is an interim budget they may not really amend the laws right away. What could happen is that the government may announce the broad contours of the scheme,"added Nayak.

But what the investors could look forward to is amendment in the tax rules for the National Pension System. In December last year the government made the entire maturity corpus under NPS tax-free. The Finance Act is likely to incorporate this amendment, putting it in effect from FY20. NPS is a defined contribution market-linked pension plan that requires annual contributions till 60 years of age. On maturity, that is when you are 60 years old, you can take only up to 60% of the maturity corpus as lump sum, because at least 40% of the maturity corpus gets locked in to buy an annuity product that pays regular income for life. While you don’t pay an income tax on the portion of the corpus that gets annuitized, the lump sum portion was taxable -- 20% of the maturity corpus that you bring home is taxable, leaving only 40% of the corpus tax-free. But now the entire 60% of the corpus that you can withdraw will be tax free. It is, however, important to note that while this brings NPS in the exempt-exempt-exempt status as the contributions qualify for a tax deduction and now there is no tax on maturity, the annuity income is taxable in your hands.

Also read: Piyush Goyal: BJP's man for all seasons

Housing is another area that is expected to see some announcements. In an effort to achieve the target of ‘Housing for all by 2022’ the budget may introduce or increase some benefit for home buyers. According to Samantak Das, chief economist and head (research and REIS), JLL India, the budget may enhance the tax deduction limit against housing interest or carve out separate deduction for principal repayment of home loans. However, tax experts feel it is unlikely that the interim budget will bring about sweeping changes.

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