Tax planning is an integral part of financial planning. The plan for the financial year 2019-20 should take into consideration some critical changes to tax laws which could impact the tax savings and investments for a taxpayer.
Significant tax changes to note for FY 2019-20
Tax rebate for income up to Rs. 5 Lakh
A taxpayer earning taxable income up to Rs. 5 Lakh is entitled to a full tax rebate from income-tax payable. The tax rebate is available under section 87A of the Income-tax Act up to an income-tax payable of Rs. 12,500.
Individuals earning income over Rs. 5 Lakh can plan their investments for tax savings to reduce their taxable income to Rs. 5 Lakhs or less. Additionally, salaried individuals also have the opportunity to structure their salary for availing the benefit for tax-free components, e.g., House Rent Allowance (HRA), Leave Travel Allowance (LTA) etc.
Standard deduction limit increased to Rs. 50,000
A Standard deduction is allowed to salaried taxpayers and pensioners from their salary/ pension. The limit for the standard deduction available is enhanced to Rs. 50,000 from Rs. 40,000.
Income-tax benefit for second self-occupied house property
The benefit of income-tax exemption from rent was available to only one self-occupied house property. Hence the taxpayer was required to calculate notional rent and pay income-tax on more than one house property owned. The benefit of ‘self-occupied’ property is now extended to a second house owned by the taxpayer which is self-occupied or lying vacant owing to employment in another place.
The threshold for tax deduction at source (TDS) enhanced
The threshold for deduction of tax/ TDS for interest received on bank and post office deposits has been enhanced to Rs. 40,000 from the existing threshold of Rs. 10,000. Similarly, the TDS threshold for rental income has been enhanced to Rs. 2,40,000 from the existing threshold of Rs. 1,80,000; this would benefit small taxpayers from the hassle of making an income-tax filing and claiming a refund of TDS.
Exemption from Long-term capital gains for investment in two residential houses
Taxpayers can claim exemption from long term capital gains arising on sale of a residential house upon investment in another residential house. This benefit has been extended to investment in up to 2 residential houses from the Financial year 2019-20. This benefit is given once in a lifetime to a taxpayer, and the capital gains must not exceed Rs 2crores.