· Surcharge hiked for those earning above Rs.2 crore; higher deduction on home loan interest for low-cost housing
· Extra deduction for interest paid on loans taken in current FY for buying a house priced up to Rs.45 lakh
Finance minister maiden budget speech lasted for over two hours but she spent about five minutes on direct taxes. Clearly, after February’s populist Interim Budget, there was little room to offer more benefits. But the budget was not entirely without implications for taxpayers.
Stating that those in the highest tax brackets needed to contribute more towards nation-building, Budget 2019 increased the tax burden on the super-rich with taxable income above Rs.2 crore. It also had an incentive for buyers of affordable homes and pushed a pending National Pension System (NPS) notification making the withdrawal portion from NPS on maturity tax-free.
Increase in surcharge
The surcharge is an additional levy over and above the tax amount. Going forward, those earning between Rs.2 crore and Rs.5 crore will have to pay 25% surcharge on the tax amount, while those earning above Rs.5 crore will have to pay a surcharge of 37% on the tax amount.
Till now, both the categories were paying 15% surcharge. There are already two slabs for a surcharge—10% surcharge is levied on those with total income between Rs.50 lakh and Rs.1 crore and 15% on those with taxable income between Rs.1 crore and Rs.2 crore.
The current highest rate of the applicable income tax rate is 35.88%. As finance minister said in her speech, the new surcharge rate will increase the effective income tax rate by 3% and 7%, for those earning between Rs.2 crore to Rs.5 crore and those earning above Rs.5 crore, respectively. Therefore, the highest rate will now be 39% and 42.74%, respectively, for the two segments of income (see graph).
However, there aren’t too many super-rich with a taxable income above Rs.2 crore and so the revenue inflow may not be significant, according to Homi Mistry, partner, Deloitte India, a tax and audit firm.
According to data from the tax department, as on March 2019, a little over 200,000 individuals with income between Rs.50 lakh and Rs.1 crore filed their income tax return (ITR), while about 100,000 individuals with income above Rs.1 crore filed their ITR.
Home loan deduction
Even though there was limited room for the FM to announce tax sops, the first budget of the government couldn’t be without any relief to small tax payers. The budget announced an extra deduction to homebuyers in the affordable housing category. An additional deduction of up to Rs.1.5 lakh will be allowed for interest paid on loans sanctioned in the current financial year for buying an affordable house priced up to Rs.45 lakh.
This deduction will be over and above the deduction of Rs.2 lakh allowed on a home loan interest payment. Currently, if one avails a home loan to purchase or construct a house, the capital repayment and interest paid on the loan qualifies for deduction under separate Sections of the Income-tax Act.
While the principal repayment qualifies for deduction under Section 80C and has an overall limit of Rs.1.5 lakh a year, the interest payment qualifies for deduction under Section 24(b), with an overall limit of Rs.2 lakh a year.
“Additional deduction of interest for Rs.1.5 lakh for affordable houses priced up to Rs.45 lakh is a welcome push to affordable housing. The taxpayer, however, should not be owning any house as on the date of sanction of the loan. This will result in saving of around Rs.7 lakh over a loan period of 15 years.
“However, no increase in the deduction for other houses as well as the continuation of restriction for set-off of house property loss to Rs.2 lakh would be a dampener for existing loans," he added.
The change will be carried out by introducing Section 80EEA in the Income-tax Act from 1 April 2020 so that you can claim the additional deduction in the assessment year 2020-21.
The government had introduced a similar additional benefit of Rs.50,000 under Section 80EE of the Act for home loans taken in the financial year 2016-17, for houses valued under Rs.50 lakh. If you have already availed this scheme, you will not be able to avail the one announced in Budget 2019.
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