There is a palpable excitement in the air for the Union Budget 2019, scheduled to be presented by Finance Minister Nirmala Sitharaman on July 5. The Finance Minister of a heterogeneous country like India has an unenviable task of balancing the needs and aspirations of different social and economic classes - the middle class expects lower income tax rates, companies seek a cut in corporate tax rates, and farmers hope for a higher subsidy on key input materials.
It is not possible to satisfy every segment of society, but the nearly 25-million-strong salaried class has found favour with successive Governments. The current dispensation is no different. Since coming to power in 2014, the current Government has consistently reduced the income tax burden on the salaried class.
In his maiden budget as the Finance Minister, Arun Jaitley had hiked the income tax exemption limit to Rs. 2.5 Lakhs from Rs. 2 Lakhs earlier for individual taxpayers. The limit for senior citizens was raised to Rs. 3 Lakhs from Rs. 2.5 Lakhs. However, the exemption limit for people above 80 years was left unchanged at Rs. 5 Lakhs. With an aim to increase domestic investments in long term savings, the deductible limit under Section 80C was raised to Rs. 1.5 Lakhs from Rs. 1 Lakh. Investments in financial instruments like life insurance, National Pension Scheme and equity-linked savings scheme qualify for a deduction. The deduction limit for interest on home loans was also raised by Rs. 50,000 to Rs. 2 Lakhs.
With an aim to widen penetration of health cover, the deduction limit on health insurance premium was increased to Rs. 25,000 from Rs. 15,000 and for senior citizens, it was raised by Rs. 10,000 to Rs. 30,000. Premiums paid for health insurance are eligible for deduction under Section 80D of the Income Tax Act, 1961. Retirement planning was also given a boost as an additional deduction of Rs. 50,000 under Section 80CCD was allowed for contribution to the National Pension Scheme. One of the biggest tax reliefs was the removal of wealth tax. An additional surcharge of 2 percent was levied on people with a taxable income of more than Rs. 1 crore.
In the Union Budget 2016, the tax rebate under Section 87A was hiked to Rs. 5,000 from Rs. 2,000 for people with an income below Rs. 5 Lakhs. Finance Minister Arun Jaitley had also increased the deduction limit on rent paid under Section 80GG to Rs. 60,000 from Rs. 24,000. The surcharge levied on the income of super-rich in the previous budget was increased to 15 percent from 12 percent. A 10 percent income tax was levied on dividends more than Rs. 10 Lakhs in a year.
In a major relief to small taxpayers, the tax rate for income between Rs. 2.5 Lakhs and Rs. 5 Lakhs was reduced to 5 percent from 10 percent. This reduced the income tax outgo by Rs. 12,500. To balance the reduction, the Finance Minister had slashed the tax rebate under Section 87A to Rs. 2,500 from Rs. 5,000 for people with an annual income up to Rs. 3 Lakhs. Continuing with taxes on the rich, the minister had introduced a surcharge of 10 percent for people with a taxable income between Rs. 50 Lakhs and Rs. 1 crore.
The budget in 2018 was primarily remembered for the introduction of a 10 percent tax on long term capital gains exceeding Rs. 1 Lakh. However, tax relief was provided to senior citizens as the deduction for interest income earned on deposits with banks, post offices were increased by five times to Rs. 50,000 for them. Deduction for medical expenditure was also raised to Rs. 50,000 from Rs. 30,000 for senior citizens. The 3 percent education cess on personal income tax and corporation tax was replaced by a 4 percent health and education cess to fulfil the needs of poor families.
In a tax bonanza for the middle class, an annual income below Rs. 5 Lakhs was made tax free by the then acting Finance Minister Piyush Goyal. The standard deduction was increased by Rs. 10,000 to Rs. 50,000, which resulted in tax savings of Rs. 3,000 for individuals in the 30 percent tax bracket.
The Government is expected to present a budget that will stimulate the economy and support flagging consumption. Union Budget 2019 ensures that crucial sectors of the economy like automobiles and consumer goods that have been facing consumption blues to be reformed. The Government is likely to cut taxes to provide a boost to consumption. The exemption limit for individuals may be raised to Rs. 3 Lakhs from the current Rs. 2.5 Lakhs. Though annual income up to Rs. 5 Lakhs is essentially tax-free, individuals still have to file income tax returns as the exemption limit is Rs. 2.5 Lakhs. The tax on income above Rs. 2.5 Lakhs has to be claimed as rebate under section 87A.
The Government may also notify the hiked tax exemption limit on withdrawal of lump sum amounts from National Pension Scheme, which was announced in December. If the change is notified, NPS will join instruments like PPF and EPF in EEE or the Exempt-Exempt-Exempt category. EEE status means that investments in NPS will be tax-free at all the three stages--investment, accumulation and withdrawal stage. With rising costs of medical care, an increase in deductions under Section 80D cannot be ruled out. Currently, investment of Rs. 25,000 for health insurance premiums qualifies for the deduction. The limit can be raised to Rs. 35,000 in the latest budget.