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5 Key changes in Income Tax Rules from April 1, 2019 that you must Know

5 Key changes in Income Tax Rules from April 1, 2019 that you must Know

Finance Minister Piyush Goyal has proposed many changes in tax rules in Budget 2019. We present you 5 key changes that would impact all income taxpayers.

1. Increased Tax Rebate u/s 87A:

While making the budget speech, the Finance Minister said that people with taxable income of Rs 5 lakh would get a full tax rebate. Many people thought that he has changed the tax slab. But once the Budget document was out, the change was made in Section 87A. From FY 2019-20 for individuals with taxable income of Rs 5 lakh or less the tax rebate would be lesser of tax liability or Rs 12,500 whichever is lower. Below is the calculation:

FY 2019-20FY 2018-19
Taxable Income5,00,0005,00,000
Income Tax12,50012,500
Tax Rebate u/s 87A12,5000
Health & Education Cess @ 4%0500
Total Tax Payable013,000

This would only benefit people with taxable income below Rs 5 lakh. Had there been a reduction in the tax slab it would have benefited every taxpayer.

2. Standard deduction increased from Rs 40,000 to Rs 50000:

The standard deduction available to Salaried & Pensioners has been increased from Rs 40,000 to Rs 50000. This would reduce the tax liability up to Rs 3,558 in the highest tax slab.

3. No Tax on Notional Rental Income from Second House:

Until this year, if someone had more than one house, he could show one house as self-occupied while all other houses have to be either classified as rented (if it was actually rented) or deemed to be rented (if vacant or self-occupied). In case of “deemed to be rented” the taxpayer had to show notional rental income from those houses and pay taxes on the same. From the next financial year FY 2019-20, now you can have two houses as self-occupied. This is a good move as many people have to maintain two houses, one for self and other for dependents including parents, children or spouse.

However, in the case of more than 2 houses, notional income would still hold.

4. Capital gains exemption on reinvestment in two house properties

Taxpayers can save on Long term capital gains arising from the sale of the house by buying another house under section 54. In Budget 2019, the taxpayers can now buy two houses on the sale of 1 house if the capital gains are less than Rs 2 crore. This benefit can be availed only once in a lifetime. This was a good move as many people had to sell one house and buy multiple properties to bequeath to their heirs.

5. TDS threshold increased from Rs 10,000 to Rs 40,000 on Bank Interest Income

The threshold of deducting TDS on interest income from Bank, Post Office or co-operative deposit has been increased from Rs 10,000 to Rs 40,000. Assuming an interest rate of 8%, you can deposit Rs 5 lakh in Bank Fixed Deposit and not worry about TDS. I think this is a great move as many people had to unnecessary go through TDS and file Income tax returns of fill Form 15G/H. But do remember, that no TDS does mean no tax. You still need to show the interest income and pay tax if required.

Hope you've understood the changes that you need to consider while invensting for this year. We'll come up with various investment ideas to support your decision this year.
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