Finance minister Nirmala Sitharaman in her first Budget made no changes in the income tax in budget 2019 structure. However, she announced a slew of new income tax proposals that could impact many tax payers. “We are thankful to the taxpayers who play a major role in nation building by paying their taxes. However, in view of rising income levels, those in the highest income brackets, need to contribute more to the nation’s development,” Ms Sitharaman said. This Budget was the first full budget by the Prime Minister Narendra Modi-led National Democratic Alliance (NDA) government after returning to power in May.

Highlights from income tax provisions:

1.1 The government hiked the effective tax rates for individuals with a taxable income of Rs. 2 crore-Rs. 5 crore and over Rs. 5 crore by around 3 and 7 per cent.

1.2 The government also announced 2% TDS on cash withdrawal on amount exceeding 1 crore in a year.

1.3 Ms Sitharaman also proposed that all companies having annual turnover of Rs. 400 crore will now come under the bracket of 25 per cent corporate tax. The announcement would cover 99.3 per cent of the companies operating in the country. Now only 0.7 per cent of companies will remain outside this rate.

1.4 Retail investors in CPSE(central public sector enterprises) ETFs could get ELSS-like income tax benefits, according to the Budget proposals. The government today set a 1.05 lakh crore divestment target this year. Currently, investments made in ELSS (equity linked savings scheme) mutual funds, which come with a lock-in period of three years, are eligible for tax deduction of up to 1.50 lakh under Section 80C of the Income Tax Act.

1.5 Ms Sitharaman also proposed that all companies having annual turnover of Rs. 400 crore will now come under the bracket of 25 per cent corporate tax. The announcement would cover 99.3 per cent of the companies operating in the country. Now only 0.7 per cent of companies will remain outside this rate

1.6 “Pre-filled tax returns will be made available to taxpayers which will contain details of salary income, capital gains from securities, bank interests, and dividends etc. and tax deductions,” the Minister said in her Budget speech. Information regarding these incomes will be collected from the concerned sources such as banks, stock exchanges, mutual funds, EPFO (Employee Provident Fund Organization), State Registration Departments etc.

1.7 Ms Sitharaman said that Aadhaar and PAN or Permanent Account Number will be “interchangeable” for filing Income Tax returns. “More than 120 crore Indians now have Aadhaar card, therefore for ease of tax-payers, I propose to make PAN card and Aadhaar card interchangeable and allow those who don’t have PAN to file returns by simply quoting Aadhaar number. They would be able to use that wherever one is required to use PAN,” the minister said.

1.8 The government allowed an additional deduction of up to Rs. 1.5 lakh against interest paid on loans taken by March 31, 2020 to buy houses worth up to Rs. 45 lakh.

1.9 The government also proposed to increase the income tax exemption limit on withdrawal from National Pension System (NPS) to 60 per cent, from the existing 40 per cent.

1.10 To boost the use of electric vehicles, an additional income tax deduction of Rs. 1.5 lakh on interest paid on loans taken to purchase EVs was proposed

1.11 “The government will launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas and provide them investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits,” Ms Sitharaman said.

1.12 To resolve the ‘angel tax’ issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums, the Minister said in her Budget speech. The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department.

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