1. Introduction

The Government has set out a comprehensive ten-dimensional vision for India by 2030. A vote on account usually has limited changes. In spite of upcoming general elections in the country, the Interim Budget 2019 does not reflect as typical populist budget. However the Interim finance minister has tried to appease the lower and middle class and MSMEs by bringing in a few amendments to the Income-tax act. In this article, we would be analysing the amendments pertaining to Direct Taxes and its impact.

2. Amendments in Income-tax Act

a) Standard deduction while computing income from salaries – Section 16

Existing provision

Under the existing provision a standard deduction of ₹ 40,000/- or the amount of salary, whichever is less, was allowed while computing the income chargeable under the head salaries.


As per the Finance Bill this limit of ₹ 40,000/- is now been raised to ₹ 50,000/-.

Analysis: The pinch of tax is usually higher on salaried person. Standard deduction for salary earners was brought by the Government in Finance Act, 2018 in place of transport allowance and medical reimbursement. The amount is increased by ₹ 10,000. Though the impact of this amendment to an individual would be minimal, the Government anticipates the aggregate impact of around ₹ 4700 crore to more than ₹ 3 crore salary earners and pensioners.

b) Rental income – Income from property

i) Exemption to self-occupied property – Section 23

Existing provision

Section 23 of the Income-tax Act deems notional rent as income earned in case of vacant properties. This did not apply in certain cases. The annual letting value of a property was considered as Nil, in case it was self-occupied for own use. It was also treated as NIL in case the property could not be self-occupied for a reason that the owner is employed or has business etc. at some other place, where he has to reside at that other place not belonging to him. This benefit however was limited and available only in respect of one such property.


The interim Finance Bill seeks to extend the benefit for two house properties as against one property as mentioned above.

ii) Deduction from income from house property – Section 24

Existing provision

In case of self-occupied property wherein notional rent was charged to tax, the Income-tax Act provided for a standard deduction of ₹ 30,000/-. In case the property was acquired from borrowed capital, further deduction of interest up to maximum of ₹ 2,00,000/- was allowed.


Now since two self-occupied properties are given exemption, the Finance Bill seeks to cap total deduction, i.e., standard deduction and interest, at ₹ 2,00,000/- for both properties.

Analysis: The positives being that by allowing the benefit for two houses the Government has provide big relief, especially for people who migrate away from their hometown in search of employment/work. Now they can have houses at two places without having to bear the brunt of tax on notional rent which was payable by taxpayers in case where they had more than one self-occupied house.

However there is a downside to the amendment, earlier the total deduction was allowable up to ₹ 2,30,000/- i.e. (₹ 30,000 of standard deduction + ₹ 2,00,000/- of interest income) whereas now the deduction is restricted to ₹ 2,00,000/-. Hence even for one property the deduction stands reduced by ₹ 30,000/-. Further in case where second property was deemed to be let out, deduction of whole interest for the year was allowed without any limit and thus in case of net loss it would have been set off against current year income. If there was no such set off such or the loss would have been allowed to be carried forward for eight years to be adjusted against future income from house property. Thus it can be seen that these amendments are beneficial to people who have self-funded houses or do not have any outstanding loan. However people with outstanding loan will lose out on the benefit to the extent of interest paid in excess of ₹ 1,70,000/-.

iii) Notional income of property held as stock-in-trade

Existing provision

Considering the business exigencies in case of real estate developers, Finance Bill 2017 amended section 23 so as to provide that where the house property consisting of any building and land appurtenant thereto is held as stock-in-trade was not let out, the annual value of such property, for the period up to one year, shall be taken to be nil. Thus it could be seen that exemption was given to properties held as stock in trade for a period up to one year from end of the financial year in which the certificate of completion of construction was obtained.


Finance bill 2019 seeks to grant further relief by extending the time limit to two years instead of one year.

Analysis: The real estate sector is awaiting for decision of the Supreme Court in relation to issue of whether deeming provision can be applied in relation to unsold property lying as stock-in-trade and treat notional rent as income from house property. The Government had brought in the amendment in Finance Act 2017, to grant exemption until one year from end of the year in which construction was completed. Further Real Estate (Regulation and Development) Act, 2016 which sought to protect home-buyers also laid burden on the builders and construction contracts to complete the project within particular timeframe. Lot of people had anticipated that the prices of housing will come down, since the builder will have to sell their stock to avoid paying tax on notional rent after the period of one year is over. Increasing the exemption from 1 to 2 years in this budget is a big relief to the real estate sector, which is facing liquidity crunch and an uphill task of recovery. The downside being that in 2017, the anticipation that the prices of housing will come down was not significant and further extension 2 years will give more window to stakeholders to hold the price level.

c) Exemption of long term capital gains from sale of residential house – Section 54

Existing provision

Under the existing provisions long term capital gains arising to an individual or HUF from sale of residential house was exempt to the extent the assessee has invested in one residential house property.


As per the proposed amendment, the assessee now has an option to claim the benefit for investment made in two properties, if the capital gain is up to ₹ 2 crore. This option to exercise this benefit is available only once in lifetime.

Analysis: Giving such a benefit provides the much needed impetus to the real estate sector. Considering this is a once in lifetime opportunity, one needs to analyse when to exercise such an option. This amendment would be helpful in cases where families want to sell their current bigger house and diversify their investment in two separate small houses.

d) Deduction in respect of profits and gains from housing projects – Section 80-IBA

Existing provision

Earlier, 100% deduction of profits and gains derived from business of developing and building housing projects was available subject to certain condition in relation to projects approved on or before 31st March 2019.


This clause has been amended and benefit is provided for additional year i.e., for housing projects approved till 31st March 2020.

Analysis: In line with the Government vision of affordable housing for all, the extension of benefit to cover projects for an additional year will provide much impetus to the real estate sector.

e) Rebate of income-tax – Section 87A

Existing provision

Under the existing provisions a rebate of income tax of maximum of ₹ 2,500 was available if income, of an individual being resident in India, did not exceed ₹ 3,50,000/-


The benefit is now extended to cover all individuals earning income up to ₹ 5,00,000/-. Rebate of income tax on the income earned is granted subject to maximum of ₹ 12,500/-.

Analysis: As stated by the interim Finance Minister, this amendment will provide a tax benefit of ₹ 18,500 crore to an estimated 3 crore middle class taxpayers. This puts more income in the hands of the people, which may lead to increase in consumption. It can be seen that this relief for the aam aadmi / middle class segment is given by way of providing rebate of income tax for people who have income up to ₹ 5,00,000/-. Practically even if a person is earning around 6.5 to 7 lakh, after claiming deduction or reliefs of 1.5- 2 lakh under various sections, net taxable income would be below ₹ 5,00,000/- and hence there will be zero tax liability. However it would be worth mentioning that there is no change in the tax slabs, and hence if an individual earns even a rupee more than ₹ 500,000 as net taxable income, this benefit will not be available.

f) TDS on interest – Section 194A

Existing provision

The threshold limit for deduction of TDS by banks/post office etc., in relation to payment of interest other than income by way of interest on securities was ₹ 10,000/-.


The threshold limit is now increased to ₹ 40,000/-.

Analysis: This is a really positive move by the Government to remove the compliance/ administrative hassles for people who have very low income but tax was deducted on Interest wherever it crossed ₹ 10,000/-. Earlier one had to submit Form 15G or 15H as applicable if his/her total income was not going to cross the basic exemption limit. If this was not done, they had to file returns and claim refund, which is a very tedious process. It is a welcome move especially for non- working spouses and senior citizens, who majorly invest their money in post offices schemes/fixed deposits.

g) TDS on rent– Section 194-I

Existing provision

The threshold limit for deduction of tax by certain persons in relation to payment of rent is ₹ 1,80,000/-


The threshold limit is now increased to ₹ 2,40,000


This will give some relief to persons who are living on rent and pay rent below ₹ 2,40,000/-.

3. Conclusion

Evolving with technology, even the Income tax department is moving towards a digital world. Many steps have been taken over the past years in relation to online assessments etc. Though there is no specific amendment in the Finance Bill the interim Finance Minister has in his budget speech laid down the path for the department giving a two year time frame wherein almost all verification and assessment of returns selected for scrutiny will be done electronically through anonymous back office. This will reduce personal interface between the taxpayer and the tax officer, bringing more transparency into the system. Another positive announcement was that all returns will be processed in twenty four hours and refunds issued simultaneously. The Government is trying to create a taxpayer friendly environment, removing a lot of administrative hassles. Considering this was an interim budget no major tax reforms were proposed, but still it is a good budget having some necessary benefits for the needy ones.