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Budget FY 2019-20 – Tax on Salary

The interim Union Budget for FY 2019-20 was tabled in the Parliament by the Finance Minister of India on 01-Feb-2019. Here are the key proposals related to computation of tax on salary which payroll managers need to consider for FY 2019-20, effective 01-Apr-2019.

Note: This post has been updated to include the proposals tabled by the Finance Minister on July 5, 2019.

1. Tax slabs remain the same

The tax rates for salaried employees below 60 years of age for FY 2019-20 shall be the same as those for FY 2018-19.

The tax rates (for FY 2019-20) for salaried employees below 60 years of age are as follows.

The tax rates (for FY 2019-20) for salaried employees aged 60 years and above but below 80 years are as follows.

2. Surcharge changes

In case the total taxable income for the year goes beyond Rs 50 lakh but is less than or equal to Rs 1 crore in the year, a surcharge of 10% (subject to marginal relief) on the income tax is to be deducted, as it was in FY 2018-19.

In case the total taxable income for the year goes beyond Rs 1 crore but is less than or equal to Rs 2 crore in the year, a surcharge of 15% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in FY 2018-19 too.

In case the total taxable income for the year goes beyond Rs 2 crore but is less than or equal to Rs 5 crore in the year, a surcharge of 25% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in FY 2018-19.

In case the total taxable income for the year goes beyond Rs 5 crore, a surcharge of 37% (subject to marginal relief) on the income tax is to be deducted – the surcharge was 15% in FY 2018-19.

3. Health and Education Cess stays unchanged

The “Health and Education Cess” stays at 4% on income tax and surcharge, if applicable.

4. Increase in rebate under Section 87A

The maximum tax rebate under Section 87A has been increased to Rs 12,500. The limit was Rs 2,500 for FY 2018-19. An employee’s net taxable income after all deductions (including Standard Deduction and Chapter VIA deductions) should not exceed Rs 5,00,000, for the employee to be able to avail the rebate under Section 87A in 2019-20.

5. Increase in Standard Deduction

In the 2019-20, the Standard Deduction shall be Rs 50,000. In 2018-19, the Standard Deduction was Rs 40,000.

6. No notional income on the second self-occupied house property

In 2018-19, an employee could specify only one house property as “self-occupied”. In case the employee owned 2 properties which were not let-out – in other words, the employee occupied one property and kept the other locked, the employee could declare only one property as self-occupied for which the annual value is zero. With regard to the second property (which was kept locked), the employee had to present a notional rental value and consider it as an income from house property.

In 2019-20, an employee can declare up to 2 properties as self-occupied for which the income (from house property) shall be zero.

7. Section 80EEA – First time home buyer

Section 80EEA – The budget provides for a benefit of Rs 1,50,000 on interest payment towards housing loan taken by first home buyers subject to the following conditions.

a. The benefit shall be available from FY 2019-20 and continued with in subsequent years until the limit of Rs 1,50,000 is attained. Please note that this benefit is in addition to the interest benefit provided by Section 24 of the Income Tax Act.

b. The housing loan should be sanctioned by a financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2020.

c. The stamp value of the of the residential house property should not exceed Rs 45 lakh.

d. The employee should not own any residential house property on the date of sanction of loan.

e. The employee should have taken the housing loan from a financial institution (a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Income Tax Act or a housing finance company).

7. Section 80EEB – Electric Vehicle

Section 80EEB – The budget provides for a benefit of Rs 1,50,000 on interest payment towards loan taken by buyers of an electric vehicle, subject to the following conditions.

a. The benefit shall be available from FY 2019-20 and continued with in subsequent years until the limit of Rs 1,50,000 is attained.

b. The loan should be sanctioned by a financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2023.

c. “Electric vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy.

d. The employee should have taken the loan from a financial institution (a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Income Tax Act or a housing finance company).