What’s in India’s 2019 Interim Budget?

With India’s general elections around the corner, the Modi government has come out with a massive spending plan for the country’s general public.

The government’s 2019 interim budget includes a cash transfer program for small and marginal farmers that involves an additional Rs 70,000 crore of revenue spending, income tax concessions for the middle class, a mega pension plan for the unorganized sector, and support for small businesses among other schemes.

The budget, however, does not propose any major reforms that would directly affect foreign investment or multinational companies in India.

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Below, we provide an overview of key announcements and proposals made in the interim budget.

Tax proposal for individual taxpayers

While there are no changes to the income tax slabs or rates, the budget proposes tax benefits and relief to individual taxpayers in the form of:

• Full tax rebate to those earning up to Rs 5 lakh (US$6,990);
• Increase in standard deduction from Rs 40,000 (US$558) to Rs 50,000 (US$698) on personal income tax for salaried people;
• Increase in the tax deducted at source (TDS) limit on the bank, and post office deposits, from Rs 10,000 (US$140) to Rs 40,000 (US$558);
• Section 54 exemption available on the second house property, provided the capital gains is less than or equal to Rs 2 crores (US$ 279,620 )– to be availed only once in a lifetime;
• Exemption on levy of income tax on notional rent of second self-occupied house. Currently, income tax on notional rent is payable if an individual has more than one self-occupied house; and
• Aggregate deduction of interest on home loan for self-occupied properties retained at Rs 2 lakh (US$2,796)

Tax proposal for small businesses, real estate developers

Addressing the interests of traders, micro, small, and medium enterprises (MSME), and real estate developers, the government has announced the following benefits and incentives:

MSMEs

• Increased share of government procurement from MSMEs through government e-marketplace (GeM) to 25 per cent, including three per cent from MSMEs run by women.
• A scheme to avail business loans up to Rs. 1 crore (US$139,575) within 59 minutes, to enable easy access to credit for MSMEs. 
• Two percent interest rebate on incremental loan up to Rs 1 crore (US$139,575) for goods and services tax (GST)-registered MSME units.
• SMEs with earnings below Rs 5 crore (US$697,875) will be required to file GST returns only once in three months.

Real estate developers

• The budget has proposed to extend the benefits under section 80-IBA of the income tax act for one more year – to the housing projects approved until March 31, 2020. This means that such projects will offer a 100 percent deduction of profits to an assessee engaged in developing affordable housing projects.

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• It has also proposed to extend the period of exemption from levy of tax on notional rent related to unsold properties – from one year to two years, starting from the end of the year in which the project is completed.

Incentives for laborers and workers

In a bid to win over workers in the informal sector, the government has launched a pension scheme that is designed to ensure a monthly pension of Rs 3000 (US$42) for workers above the 60 years of age.

Other benefits and incentives include the following:

• Increase in the gratuity payment ceiling from Rs 10 lakh (US$13,957) to Rs 20 lakh (US$27,915);
• Increase in the employee state insurance (ESI) eligibility cover ceiling from Rs 15,000 (US$ 209) per month to Rs 21,000 (US$293) per month;
• Fixed minimum pension of Rs 1,000 (US$14) per month, for every laborer;
• Increase in the amount to be paid by the Employment Provident Fund Organization (EPFO) from Rs 2.5 lakh (US$3,489) to Rs 6 lakh (US$ 8,375), in case of a death of a laborer during service; and
• Increase in the bonus ceiling given to workers from Rs 3500 (US$49) per month to Rs 7000 (US$98) per month. The ceiling for pay increased from Rs 10,000 (US$140) per month to Rs 21,000 (US$293) per month.

Agriculture and farm sector

Under the Pradhan Mantri Kisan Samman Nidhi, the cash transfer scheme for farmers, the government will transfer Rs 6,000 (US$84) to the bank accounts of farmers holding up to two hectares of land in three equal instalments. 

The government has also proposed to:

• Set up a separate department of fisheries;
• Two percent interest subvention to farmers for animal husbandry and fisheries activities, and an additional three percent interest subvention for timely repayment;
• Two percent Interest subvention for farmers affected by natural disasters; and
• Set up Rashtriya Kamdhenu Ayog, an institute for sustainable genetic up-gradation of the cow resources.

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