Tax rates for individuals having taxable income from ₹ 2 cr - 5 cr and ₹ 5 cr & above to be increased by around 3 % and 7 % respectively

Direct Tax revenue increases by over 78 % in FY2018-19 from FY 2013-14; rose to  ₹ 11.37 lakh crore from ₹ 6.38 lakh crore

Relief proposed in Levy of Securities Transaction Tax (STT)

Additional deduction of up to ₹ 1.5 lakh for interest paid on loans for purchase of affordable house

Additional Income Tax deduction of ₹ 1.5 lakh on interest paid on loans taken to purchase Electric Vehicles

The effective tax rates for the higher income group individuals having taxable income from ₹ 2 crore to ₹ 5 crore and  ₹ 5 crore and above is proposed to be increased by around 3 percent and 7 percent  respectively. Presenting the General Budget 2019-20 in the Parliament today, Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman said, “In view of rising income levels, those in the highest income bracket need to contribute more to the Nation’s development”. Thanking the taxpayers, she said that they are playing a major role in Nation building.

Referring to several measures taken in the past to alleviate the tax burden on small and medium income earners, the Minister said, “Those having annual income upto ₹ 5 lakh are not required to pay any income tax”. This includes self-employed as well as small traders, salary earners, and senior citizens, she added.

Tax Revenue Up

Due to slew of efforts taken by the Government, the direct tax revenue has significantly increased by over 78 percent from ₹ 6.38 lakh crore in Financial Year 2013-14 to around ₹ 11.37 lakh crore in Financial Year 2018-19. The Minister stated that the increase has been significant in last couple of years. The Direct Tax revenue grew by 19.13 percent to ₹ 10, 02, 741 crore in 2017-18 (₹ 8, 41, 713 crore in 2016-17) and by 13.46 percent in 2018-19. The number of taxpayers also increased by approximately 48 percent over the period 2013-14 to 2017-18, from 5.71 crore taxpayers to 8.4 crore taxpayers, due to various initiatives and taxpayer outreach programmes undertaken by the Government.

Relief in Levy of Securities Transaction Tax (STT)

In her speech, the Finance Minister proposed to give relief in levy of Securities Transaction Tax by restricting it only to the difference between settlement and strike price in case of exercise of options.

Additional Deduction of Interest for Affordable Housing

In order to provide a further impetus to affordable housing, the Minister proposed to allow an additional deduction of up to ₹ 1,50,000/- for interest paid on loans borrowed up to 31^st March, 2020 for purchase of an affordable house valued up to ₹ 45 lakh. Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to ₹ 3.5 lakh. This will translate into a benefit of around ₹ 7 lakh to the middle class home-buyers over their loan period of 15 years.

For realisation of the goal of ‘Housing for All’ and affordable housing, a tax holiday has already been provided on the profits earned by developers of affordable housing. Also, interest paid on housing loans is allowed as a deduction to the extent of ₹ 2 lakh in respect of self-occupied property.

Promoting Electric Vehicles

To make Electric Vehicles affordable to consumers, the Minister said that the Government will provide additional income tax deduction of ₹ 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. This amounts to a benefit of around ₹ 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle. Considering India’s large consumer base, the she stated, “We aim to leapfrog and envision India as a global hub of  manufacturing of Electric Vehicles. Inclusion of Solar storage batteries and charging infrastructure in the above scheme will boost our efforts”. The Government has already moved GST council to lower the GST rate on electric vehicles from 12% to 5%, she added.

Level Playing Field for Non Banking Financial Companies (NBFCs)

Recognising the increasingly important role of NBFCs in India’s financial system and to provide level playing field, the Finance Minister has proposed to tax the interest on bad or doubtful debts in the year in which it is actually received. Presently this is allowed for scheduled banks, public financial institutions, state financial corporations, state industrial investment corporations, cooperative banks and certain public companies like housing finance companies.

Measures to promote the International Financial Services Centre (IFSC)

To promote IFSC in GIFT City, the Finance Minister proposed to further provide several direct tax incentives to an IFSC including 100 percent profit-linked deduction under section 80-LA in any ten-year block within a fifteen-year period, exemption from dividend distribution tax from current and accumulated income to companies and mutual funds, exemptions on capital gain to Category-III AIF and interest payment on loan taken from non-residents.

Compulsory Filing of Return

The General Budget 2019-20 proposes to make return filing compulsory for persons, who have deposited more than ₹ 1 crore in a current account in a year, or who have expended more than ₹ 2 lakh on foreign travel or more than ₹ 1 lakh on electricity consumption in a year or who fulfils the prescribed conditions, in order to ensure that persons who enter into high value transactions also furnish return of income. It is also proposes to provide that a person whose income becomes lower than maximum amount not chargeable to tax due to claim of rollover benefit of capital gains shall also be required to furnish the return.

Higher tax rates for top income brackets increased, alongside new deductions for affordable housing and electric vehicle loan interest. The Budget increases effective tax rates for the highest individual income groups while reporting substantial growth in direct tax revenues. It restricts Securities Transaction Tax on option exercise to the difference between settlement and strike price, grants an additional interest deduction for affordable housing loans and an additional deduction for interest on loans to purchase electric vehicles, proposes compulsory return filing for persons meeting prescribed high-value transaction thresholds, aligns NBFC taxation of bad debt interest to receipt basis, and offers direct tax incentives to promote the International Financial Services Centre.