Are You Ready for India’s New Tax Year?

India’s Finance Bill has been signed into law - with the new tax year looming, employers need to prepare their payrolls for its effects.

President Ram Nath Kovind signed India’s Finance Bill 2019 into law on 21 February. Now an Act, the 2019 interim budget legislation will come into effect on 1 April 2019, which marks the start of India’s 2019-2020 tax year.

Broadly, the proposals set out in the Finance Bill included a range of tax collection measures, which India’s Finance Minister, Piyush Goyal, argued will help poor and middle class taxpayers and stimulate economic growth. Goyal also pointed to previously-implemented tax collection initiatives which have doubled collection revenues in India over the last five years, and made the country the fastest growing major economy in the world.

If you’re an employer in India, now is the time to prepare for 1 April, and makes sure your business is ready for the incoming changes.

Key Tax Highlights 2019

India’s personal income tax ‘slabs’ have not changed for the 2019-20 tax year:

Income (Rs)

Tax Rate

Up to 250,000

0%

250,001 to 500,000

5%

500,001 to 1000,000

20%

Over 1000,000

30%

However, individual measures which will be in effect from 1 April 2019 are as follows:

Standard deduction: In a move to reduce tax liability for many taxpayers across India, the threshold limit for the standard deduction has been raised from Rs.40,000 to Rs.50,000.

Health & Education Cess: The current 4% Health & Education Cess (tax) will remain in place.

Senior Citizen tax exemption: Senior citizens will see their tax exemption limit frozen at 3 Lakhs. Very senior citizens will have their limit frozen at 5 Lakhs.

Income Surcharge:

  • A surcharge of 10% tax payable has been introduced for taxpayers who earn an annual income of between Rs.50 Lakhs and Rs.1 crore.
  • A surcharge of 15% will remain in place for annual incomes of Rs.1 crore.

Tax Rebate: Individual taxpayers with incomes of up to Rs.5 Lakhs will be able to receive the full tax rebate of  Rs.12,500.

Provident fund investment: Taxpayers with gross incomes of up to Rs.6.5 Lakhs who invest in provident funds and certain prescribed equities, will not need to pay tax.

Self-occupied property exemption: Income tax liability on notional rent from a second self-occupied house has been eliminated.

Second residential house benefit: The existing benefit of capital gains tax exemption from one residential property will be extended to include the purchase of two residential properties. The exemption can be claimed up to Rs.2 crore - and claimed only once.

Tax deducted at source (TDS) thresholds: The threshold limits on TDS has been increased in certain contexts. 

  • The TDS limit on interest from bank or post office deposits has been raised from Rs.10,000 to Rs.40,000.
  • The TDS limit on income from rent has been increased from Rs.1,80,000 to Rs.2,40,000.

Wider tax measures

Beyond the individual measures introduced from April 2019, were additional measures for businesses, such as the continuing reduction of GST, the option for businesses with less than Rs. 5 crore annual turnover to make quarterly tax returns, and the ongoing introduction of electronic tax returns across India. 

In support of the Bill, Finance Minister Goyal highlighted India’s positive economic ambitions over the next decade. Goyal pointed out that India was “poised” to become a $5 trillion economy in the next five years” - and should “aspire to become a $10 trillion economy in the next eight.”

Learn more about India’s tax and social security system by exploring activpayroll’s Global Insight Guide to India.