How Modi 2.0’s Full Budget Impacts Your Finances
Jul 06, 2019

Author: Rounaq Neroy

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India's first full-time finance minister since independence, Ms Nirmala Sitharaman, presented Modi 2.0's full budget for the current financial year on July 5, 2019. After a landslide victory--a Tsu-NaMo as they called it-there were a lot of expectations from all quarters; various sections of the society.

"The recent election which brought us to this august House today, was charged with brimming hope and desire for a bright and stable New India. Like never before, India celebrated its democracy by coming out to vote in large numbers, like never before. Voter turnout was the highest at 67.9%. Every section - young, old, first-time voters, voters since the first General Election, women - all turned up to stamp their approval of a performing Government. Through their unambiguous and firm mandate they have reaffirmed "putting the nation first". The people of India have validated the two goals for our country's future: that of national society and economic growth." said Ms Nirmala Sitharaman in the opening statement of her budget speech.

So, what was in for the common man (the aam aadmi) who gave a decisive mandate to the Modi-led-NDA government in the recently held Lok Sabha elections; were the expectations met?

Let's evaluate are some of the key proposals...

No Income Tax for income up to Rs 5 lakh - Do not get carried away, the tax slabs and base exemption limit hasn't changed. It is just a reiteration of the announcement of a full tax rebate proposed in the Interim Budget presented in February 2019.

Higher surcharge for individuals having a high taxable income - If your taxable income is over Rs 2 crore, be ready to pay more as a surcharge. It is proposed as under:

Taxable income Surcharge
Rs 2 crore to Rs 5 crore Will increase by 3%
Rs 5 crore and above Will increase by 7%

This is proposed so that the effective tax rates for the aforesaid categories increase.

With this being proposed, Ms Sitharaman has put many speculations to rest that possibly an inheritance tax or wealth tax will be introduced.

Simplification of tax laws - This is proposed in order to reduce genuine hardships being caused to taxpayers. This includes enhancing the threshold of tax for launching prosecution for non-filing of returns and exempting appropriate class of persons from the anti-abuse provisions of Section 50CA and Section 56 of the Income Tax Act, 1961.

Interchangeable PAN and Aadhaar - For the ease and convenience of taxpayers, it is proposed to make PAN and Aadhaar interchangeable and allow those who do not have PAN to file Income Tax returns by simply quoting their Aadhaar number and also use it wherever they are required to quote PAN.

Faceless e-assessment - Recognising that the existing system of scrutiny assessments in the Income-tax Department involves a high level of personal interaction between the taxpayer and the Department, which leads to certain undesirable practices on the part of tax officials, this is been proposed.

The budget speech states, "to give shape to the vision of the Hon'ble Prime Minister, a scheme of faceless assessment in electronic mode involving no human interface is being launched this year in a phased manner. To start with, such e-assessments shall be carried out in cases requiring verification of certain specified transactions or discrepancies."

It is further stated that "Cases selected for scrutiny shall be allocated to assessment units in a random manner and notices shall be issued electronically by a Central Cell, without disclosing the name, designation or location of the Assessing Officer. The Central Cell shall be the single point of contact between the taxpayer and the Department."

Indeed faceless e-assessment will represent a paradigm shift in the way currently Income Tax Department functions.

Pre-filled income-tax returns - This is proposed with the intention of reducing the time taken to file a tax return, and even ensure the accuracy of reporting of income and taxes.

Details of salary income, capital gains from securities, bank interests, dividends, tax deductions, etc. will be sourced from banks, stock exchanges, mutual fund houses, EPFO, State Registration Departments and so on for this purpose.

Additional interest deduction for the purchase of an "affordable house" - This is done to incentivise the purchase of an affordable house and to realise the goal of "Housing for All". It proposed to allow an additional deduction of up to Rs 1.50 lakh for interest paid on loans borrowed up to March 31, 2020, for purchase of an affordable house valued up to Rs 45 lakh. This shall be in addition to the existing interest deduction of Rs 2 lakh in case of Self Occupied Property (SOP).

Hence, as mentioned in the budget speech, a person purchasing an affordable house will now get an enhanced interest deduction of up to Rs 3.5 lakh. This will translate into a benefit of around Rs 7 lakh to the middle-class home buyers over their loan period of 15 years, according to the budget speech.

That being said, the question arises -- are affordable houses really available, particularly in the metropolitan regions of Mumbai, where property prices have already escalated way beyond? It is hard to get an "affordable house" in order to reap the benefits of this additional tax deduction.

Income tax deduction on the purchase of Electric vehicles - To encourage faster adoption of Electric vehicles, the government plans to offer upfront incentives on the purchase of Electric vehicles (also by establishing the necessary charging infrastructure for electric vehicles).

To make purchase of electric vehicles affordable to consumers, it is proposed in budget 2019-20 that an additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles will be provided. The loan is required to be taken on or before March 31, 2023.

It should be noted that the government has already moved the GST council to lower the GST rate on electric vehicles from 12% to 5%.

The aforesaid proposals are overall good and a step in the right direction to realise the vision of "Pollution Free India" - one of the points in the visions statement for the next decade, pronounced by the Modi-led-NDA government.

Incentive to National Pension System (NPS) subscribers - To give effect to the cabinet decision already taken to incentivise NPS, it is proposed as under:

  1. To increase the limit of exemption from current 40% to 60% of payment on final withdrawal from NPS (It means that a lump sum withdrawal of 60% from your NPS account will be exempt from tax i.e. tax-free, at the time of maturity);

  2. To allow a deduction for the employer's contribution upto 14% of salary from the current 10%, in the case of Central Government employee;

  3. To allow deduction under section 80C of the Income Tax Act, 1961, for the contribution made to Tier-II NPS account by Central Government employees.

Pension to retail traders & small shopkeepers - Through a new Scheme namely, Pradhan Mantri Karam Yogi Maandhan Scheme, the government has decided to extend the pension benefit to retail traders and small shopkeepers whose annual turnover is less than Rs 1.5 crore.

And the best part is, enrolment into this scheme will be kept simple; requiring only Aadhaar and a bank account and the rest will be on self-declaration. The budget speech states that about three crore retail traders and shopkeepers will benefit from this scheme.


Recognising the farm distress, the government has even taken a number of measures as regards tothe agriculture sector such as forming 10,000 new Farmer Producer Organizations, to ensure economies of scale for farmers over the next five years, and getting a fair price for their produce from APMC. This is with the objective that ease of doing business and ease of living both should apply to farmers too.


​In addition to the above, the government has taken a number of other measures; proposed several schemes with the focus of ease of living.

However, if you are looking to buy gold, there is some bad news. The government has hiked the customs duty on gold (including gold plated with platinum) to 12.5%. So, be ready to embrace higher gold prices.

[Read: 4 Reasons For Gold Getting All The Attention These Days]

To sum-up....

After a decisive mandate, the Budget 2019-20 has laid a path for the future course with the endeavour to make India a US$ 5 trillion economy in the next few years. But will that happen - translate into acche din (better days) for the electorates? Well, we need to keep a watch on the actions. Effective implementation of a number of reforms will be the key.

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