A ll stakeholders in the real estate sector, such as home buyers, home owners, builders, developers and bankers have welcomed the Interim Budget for 2019. Let us analyse how the proposals can help the common man.
Tax savings for middle class citizens
One of the major reliefs is considerable savings in the hands of the tax payer, which could help him in deciding on buying his dream home. The savings from lesser tax burden could help people to decide on investing in a house property and it also increases their ability to pay higher EMIs, ensuring higher home loan eligibility.
Standard deduction
For salaried class assesses, the standard deduction of ₹40,000 which was introduced in last year’s budget, has been proposed to be increased to ₹50,000.
No tax up to ₹10 lakh income
The salaried class tax payers having taxable income up to ₹10 lakh can plan diligently and avoid paying any income tax. This can be achieved by claiming standard deduction of ₹ 50,000, deductions up to ₹150,000 under Sec 80C for specified savings and home loan repayment, deductions up to ₹200,000 under Sec 24 towards interest paid on home loan, deduction up to ₹50,000 under Sec 80D for medical insurance premium paid (for self, spouse, children & parents below 60 years age) and deduction up to ₹50,000 under Sec 80CCD(1B) towards contribution made to NPS (National Pension Scheme).
TDS limit on interest income raised
Until now, TDS (Tax Deduction at Source) was applicable on interest earned (on bank deposits and other investments) beyond ₹10,000 pa. The Budget 2019 has proposed to increase it to ₹40,000 pa. So, more liquid cash is available for tax payers.
No tax on second house
Since long, if anybody owned two houses, one for self-use and second was for his parents, children or kept locked (not let out), it was mandatory to calculate notional rent on one house of his choice, compute rental income under ‘Income from House Properties’ and pay income tax accordingly.
The following illustration will show how this proposal will help to reduce tax liability.
On a notional rental income of say, ₹20,000 per month (₹240,000 pa) during last year, the income chargeable under house property was calculated as follows:
Gross Annual Value (notional rental income, as per municipal value) from second house : ₹240,000
Less Municipal Taxes paid on the house property : ₹20,000
Net Annual Value : ₹220,000
Less 30% standard deduction : ₹66,000
Income chargeable under house property : ₹154,000
The rental income was taxed in the hands of the assessee. If he was in the tax slab of 30%, the tax payable was ₹48,050 (including 4% cess) and if assessee was in 20% tax bracket, the tax was ₹32,035.
On approval of the Budget, there will not be any income tax levied on such second house (other than self-occupied house).
This facility is going to immensely help middle class families to maintain houses at two locations on account of their job, children’s education, taking care of parents and such other genuine family needs.
TDS limit on rental income raised
At present under Section 194I of IT Act, if rental payment exceeds ₹180,000 per annum, it is mandatory for tenant to effect TDS (Tax Deduction at Source) at the rate of 10% of rent and pay deducted amount directly to the Income Tax account.
The Budget 2019 has proposed to increase the threshold limit on TDS on rental payment to ₹ 240,000 per annum.
Exemption on Capital Gains Tax
Any profit made from transfer of capital assets including immovable properties is liable to be taxed under the income head ‘Capital Gains’.
Under Sec 54 of IT Act, there are certain exemptions available to avoid Capital Gains Tax.
Until now, if capital gains (profit made from sale/transfer of residential immovable capital assets) are invested in one house property, such gains were exempt from income tax, with certain conditions, such as time period for investing and at the time of claiming exemption, the assessee should not own more than one house property etc.
The budget 2019 has proposed to allow the assessee to invest such capital gains in two different residential properties and claim exemption from the tax. However, there is a rider that the capital gains should not exceed ₹2 crore and such exemption can be availed once in lifetime.
Revision in GST on the anvil?
At present for under-construction real estate projects, GST is applicable at the rate of 18%.
After considering reduction of 1/3rd cost towards land value, the effective GST rate becomes 12% on the sale price.
The GST Committee comprising all stakeholders has reportedly urged the Union government to lower the GST rate to 12%, which after considering reduction of 1/3rd cost towards land value, works out to 8% on the total sale price.
The new GST rate is expected to get approved after the new government is formed in April/May 2019.
If GST rate reduces to 8% on sale price, for a house property (under construction) costing ₹ 50 lakh, the purchaser will save a whopping ₹200,000.
(The author is Managing Director of Abhrant Property Counselling Services Pvt. Ltd., Bengaluru, and can be contacted on 93412 13530 or email: deshpande@propseva.com)
