India – 2019-2020 Budget Includes Big Increase in Surcharge on Higher Incomes
India – 2019-2020 Budget Includes Big Increase in Surch
India’s budget for 2019-2020 was unveiled on 5 July 2019. Income tax rates remain the same, but the surcharge on higher incomes has been increased. There are also measures for home-buyers, buyers of electric cars, and an increase in tax-free withdrawals permitted for account holders in the National Pension Scheme. In this GMS Flash Alert, we highlight the key features, in terms of the direct tax measures affecting individuals and their employers.
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With the new Indian government installed under the re-elected Prime Minister Modi, India’s Budget for 2019-2020 was presented by the new finance minister, Nirmala Sitharaman on 5 July 20191. Income tax rates remain the same, but the surcharge on higher incomes has been increased. There are also measures for home-buyers, buyers of electric cars, and an increase in tax-free withdrawals permitted for account holders in the National Pension Scheme.
Below we highlight the key features, in terms of the direct tax measures affecting individuals and their employers. Unless otherwise indicated, the proposed amendments relating to direct taxes will apply from the assessment year (“AY”) 2019-20.
WHY THIS MATTERS
This new budget signals stability and steady-as-she-goes in terms of its impact on individual taxpayers – including international assignees subject to Indian taxation -- and their employers. High-income earners will experience higher taxation with the increase in the surcharge from 15 percent to 25 percent and 37 percent, depending on one’s income level.
In those cases where an assignee’s tax burden rises due to changes in India’s tax law, the employer’s international assignment-related costs could go up accordingly, and where the assignee’s tax burden declines, then it is expected that the employer’s assignment-related costs will be reduced.
The Budget changes could affect international assignment cost projections and budgeting. Payroll departments should be prepared to make necessary adjustments.
Highlights of Budget’s Personal Tax Measures
- Income tax slabs and rates – No changes in the basic exemption limit, income slabs, tax rates,2 and cess for individuals (for more information, see below section “Additional Detail on Key Rates and Slabs”).
- Surcharge – Surcharge to be increased to 25 percent and 37 percent from 15 percent where the total income exceeds INR 20,000,000 and INR 50,000,000 respectively (for more information, see below section “Additional Detail on Key Rates and Slabs”).
- Tax-free withdrawal from National Pension Scheme (NPS)3 on closure/opting out -- Enhanced to 60 percent from 40 percent.
- Loans on purchase of residential home – Individuals are eligible for the interest deduction up to INR 1.5 lakh (equivalent to 150,000 rupees (INR 150,000)) on loans for the purchase of a residential home subject to meeting the following conditions:
- The loan has been sanctioned by a financial institution during FY 2019-20;
- Stamp duty value of the residential home does not exceed INR 45 lakh;
- The individual does not own any residential home on the date of the loan’s approval.
- No other deduction is being claimed or eligible for such interest.
- Deduction for electric vehicles – Individuals are eligible for an interest deduction of up to INR 1.5 lakh on loans taken for the purchase of electric vehicles from any financial institution including non-banking financial companies (NBFCs) during the period from 1 April 2019 to 31 March 2023.
- Tax relief on salary received in advance or in arrears – Certain sections of the tax law will be amended to provide the computation of an individual’s tax liability shall be made after allowing for any tax relief applicable when salary (etc.) is paid in arrears or in advance. This amendment will apply with retrospective effect from 1 April 2007.
- Permanent Account Numbers (PAN) and Aadhaar numbers -- PAN and Aadhaar may be used interchangeably in cases of:
- persons who have not been allotted a PAN, but possess an Aadhaar number, or
- a person who has been allotted a PAN and has linked his or her Aadhaar Number to such PAN.
(An obligation exists for these taxpayers to authenticate the details provided in the prescribed manner.)
Additional Detail on Key Rates/Slabs
These rates, for the financial year (“FY”) 2019-20, are subject to enactment of the Finance Bill 2019.
Income Tax Rates
For an Individual, Hindu Undivided Family (HUF), Association of Persons, Body of Individuals, and an Artificial Juridical Person:
| Total Income | Tax Rate |
|---|---|
| Up to INR 250,000 (a)(b) | NIL |
| INR 250,001 to INR 500,000(c) | 5% |
| INR 500,001 to INR 1,000,000 | 20% |
| INR 1,000,001 and above(d) | 30% |
[INR 1 = EUR 0.01255 | INR 1 = USD 0.0141 | INR 1 = GBP 0.0116 | INR 1 = AUD 0.021]
(a) For a resident individual aged between 60 and 80, the basic exemption limit is INR 300,000
(b) For a resident individual aged 80 or above, the basic exemption limit is INR 500,000
(c) Rebate from tax of up to INR 12,500 or 100 percent of the tax, whichever is less, available for a resident individual whose total income does not exceed INR 500,000
(d) Tax rates will further increase by the applicable surcharge and cess
Surcharge and Cess
For an Individual, Hindu Undivided Family (HUF), Association of Persons, Body of Individuals, and an Artificial Juridical Person:
| Total income | Surcharge |
|---|---|
| Exceeds INR 5,000,000 but does not exceed INR 10,000,000 | 10% |
| Exceeds INR 10,000,000 but does not exceed INR 20,000,000 | 15% |
| Exceeds INR 20,000,000 but does not exceed INR 50,000,000 | 25% |
| Exceeds INR 50,000,000 | 37% |
Health and Education cess on income tax is applicable at the rate of 4 percent on income tax (inclusive of surcharge, if any).
Securities Transaction Tax
STT in the range of 0.001 percent to 0.2 percent is payable by purchases/seller as the case may be on the value of taxable securities transactions.
Tax Deducted at Source (TDS)
The scope of TDS on transfers of immovable property has been expanded to include all charges related to club membership fees, car parking fees, electricity and water facility fees, maintenance fees, and advance fees or any other charges of similar nature, which are incidental to transfers of the immovable property. This amendment introduced by the Budget will take effect from 1 September 2019.
Under the new law, all individuals and HUF otherwise not obliged to deduct tax at source are made liable to deduct tax at 5 percent on payments for contractual work or fees for professional services payable to any resident if the sums paid during a financial year exceed INR 50 lakh. Such individuals making these deductions can remit/deposit the TDS using their PAN and are not required to obtain a Tax Deduction Account Number (TAN). A person in receipt of such income may apply for a Lower Deduction Certificate from the tax authorities for a deduction of tax at source at lower rates. This amendment will take effect from 1 September 2019.
All banks and post offices must deduct TDS at 2 percent on cash withdrawals in excess of INR 1 crore in aggregate in a financial year by any person from any account maintained with such institution by that person (INR 1 crore = 10 million rupees). (This TDS will not apply to withdrawals by specified persons such as a government, bank, post office, business correspondent of a bank, white label ATM operator, and other notified persons.) This amendment will take effect from 1 September 2019.
Next Steps
The Finance Bill will go through its Parliamentary stages in the coming weeks. Once approved by both houses of Parliament and by the President of India, the legislation will come into force.
RELATED RESOURCE
For more publications, Webinars, and other materials on the Union Budget 2019-2020, published by the KPMG International member firm in India, click here.
FOOTNOTES
1 For the budget speech and related budget documents, see the Ministry of Finance Web site, click here.
2 For FY 2018-2019 income tax slabs and rates, see Taxation of International Executives: India, a publicaiton of the KPMG International. For coverage of last year’s budget, see GMS Flash Alert 2019-029 (15 February 2019).
3 National Pension Scheme (NPS) is a defined contribution scheme wherein individuals can decide where to invest their money. It is a market-linked product and therefore offers returns based on the fund performance.
The information contained in this newsletter was submitted by the KPMG International member firm in India.
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