Budget 2019 highlights for common man: What it means for you
- The hike in the tax surcharge will affect only super-rich taxpayers earning over Rs 2 crore.
- For incomes between Rs 2 crore and Rs 5 crore, maximum marginal rate will be 39%.
- The maximum marginal rate of 42.74% tax appears high, it is still lower compared to the highest rates in some other countries.
Budget 2019 has not go down well with super rich taxpayers. The proposal to raise the surcharge from 15% to 25% for incomes between Rs 2 crore and Rs 5 crore and to 37% for incomes above Rs 5 crore will push up the maximum marginal rate to 42.74% for annual incomes above Rs 5 crore.
For incomes between Rs 2 crore and Rs 5 crore, maximum marginal rate will be 39%. “Raising the surcharge on higher income group reflects the government’s focus of taxing those who can afford to pay more taxes,” says Kuldip Kumar, Partner and Leader Personal Tax, PwC India.
Someone earning Rs 3 crore a year (or Rs 25 lakh per month) will pay roughly Rs 76,375 more in tax per month. A taxpayer with an income of Rs 6 crore a year (or Rs 50 lakh a month) will have to shell out Rs 3.4 lakh more every month.
Even so, the proposed hike will affect the tip of the taxpayer iceberg. Of the 4.66 crore returns filed in 2016-17, only 74,983 individuals (or 0.16%) reported gross incomes between Rs 1 crore and Rs 5 crore. A good number of these would be taxpayers earning below Rs 2 crore so won’t be affected. Only 6,361 individuals had incomes of over Rs 5 crore and would now have to pay 37% surcharge on the tax.
Ever since the 10% tax surcharge on incomes above Rs 1 crore was introduced in 2013 by P. Chidambaram, successive budgets have gone after rich taxpayers. In 2015, the surcharge was enhanced to 12%. The surcharge was raised to 15% in 2016 and the following year, a new 10% surcharge was introduced for incomes above Rs 50 lakh.
Though the maximum marginal rate of 42.74% tax appears high, it is still lower compared to the highest rates in some other countries. In Germany, the UK, Japan and China, 45% tax rate applies to incomes much below Rs 5 crore annually (taking the current rupee-dollar exchange rate). In the US, for single tax filers, the top tax rate is 37% for income over Rs 3.42 crore.
Also Read: Budget 2019 proposes to hike surcharge by 22% on Super-rich
Some tax professionals even see a silver lining. “The tax surcharge on incomes above Rs 2 crore and Rs 5 crore will be a burden for corporate India’s leaders, but it is still far better than an aggressive Estate Duty,” says Rishabh Shroff, Partner & Co-head, Private Client Practice, Cyril Amarchand Mangaldas.
Focus on compliance
The Budget also focused on greater tax compliance. Tax filers are now allowed to quote either PAN or Aadhaar number while filing tax returns. “This is a positive step and will help people who don’t have PAN card or have not linked their Aadhaar to the PAN. It will also useful to people who want to keep PAN private because it is more sensitive than Aadhaar,” says Suresh Surana, Founder, RSM Astute Consulting Group.
Also Read: Budget 2019 proposes to allow use of Aadhaar to file ITR
It will be compulsory to file tax returns if you deposit Rs 1 crore or more in a current bank account, spend more than Rs 2 lakh on foreign travel or run up an electricity bill of above Rs 1 lakh in a year. “Unlike the previous 1/6 compulsory filing scheme, the threshold this time is reasonably high,” says Surana. The Finance Minister has also rationalised the gifting rule by bringing additional clarification on gifts made to non-residents.
Also Read: ITR filing made mandatory for these individuals
Also Read: Budget 2019 proposes to make ITR filing easier
Income up to Rs 5 lakh
No change: Remains tax free
Income between Rs 5 lakh and Rs 2 crore
No change: Same tax as before
Income between Rs 2 crore and Rs 5 crore
|Existing (Rs)||Proposed (Rs)|
|Net taxable income||2,94,00,000||2,94,00,000|
|Tax on this||86,32,500||86,32,500|
|TOTAL TAX||1.03 crore||1.12 crore|
Tax higher by
- Rs 8.98 lakh per year
- Rs 74,815 per month
Income above Rs 5 crore
|Existing (Rs)||Proposed (Rs)|
|Net taxable income||5,90,00,000||5,90,00,000|
|Tax on this||1,75,12,500||1,75,12,500|
|TOTAL TAX||2.09 crore||2.49 crore|
Tax higher by
- 40 lakh per year
- 3.33 lakh per month
CPSE under ELSS umbrella
The Budget has also proposed to bring CPSE ETFs under the ambit of equity linked saving schemes (ELSS). This will make investments in CPSE ETFs eligible for tax deduction within the Rs 1.5 lakh Section 80C umbrella. CPSE ETFs have been launched by the government in last few years in order to facilitate disinvestment of state-owned enterprises.
“This should encourage long term investments in CPSEs and also provide an alternate investment option to retail investor which is tax efficient,” says Akhil Mittal, Senior Fund Manager, Tata Mutual Fund.
Dhaval Kapadia, Director Portfolio Specialist, Morningstar India reckons this will lead to greater issuance of CPSE ETFs and greater interest from retail investors given the tax benefits. “This will also help the ETFs to retain assets for longer periods, unlike the current scenario where the ETF loses a significant amount of assets after creation,” adds Kapadia.
While this provision will bring tax benefits for retail investors, the existing CPSE ETFs have not performed well. The first CPSE ETF was launched in 2014 and many other offerings have been launched since. Reliance CPSE ETF has clocked a paltry 1.26% over the past 5 years. Bharat-22 ETF, which tracks the Bharat 22 Index comprising 19 PSUs and three private sector firms where government holds minority stake, has fared better.
Mrin Agarwal, Financial Educator, Money Mentor and Founder of Finsafe India, says, “CPSE ETF being provided ELSS type tax benefits does not offer anything new to investors given the number of diversified and well performing ELSS schemes already present.”
Apart from these, the Budget has also offered an additional Rs 1.5 lakh deduction on interest paid for home loans taken for house valued up to Rs 45 lakh and introduced a new deduction for interest paid on loan taken for buying electric vehicles.