THE HINDU: A) The salaried class has reason to cheer the NDA government’s first Budget. Finance Minister Arun Jaitley has reduced the income tax burden, albeit in a minor way, and put some extra money in the hands of the salaried taxpayer.
First, he has increased the basic exemption limit by Rs. 50,000 to Rs. 2.5 lakhs for taxpayers less than 60 years of age. The limit will increase by a like amount for senior citizens from Rs. 2.5 lakh to Rs. 3 lakh.
Second, he has increased the tax-free savings limit under Section 80C of the Income Tax Act from Rs. 1 lakh to Rs.1.5 lakh. Those who have bought a new house and are paying an EMI have additional cause to cheer. The limit for deduction of interest paid on housing loan in the case of self-occupied property has been hiked to Rs. 2 lakh from Rs.1.5 lakh.
For taxpayers in the Rs. 5-lakh annual income slab, the savings in tax will be Rs. 10,300 while for someone in the Rs. 10-lakh slab, the tax outgo will be lower by Rs. 21,579, as per calculations by accounting firm EY.
The increase in basic exemption limits and under Section 80C have been long-standing demands of taxpayers given that inflation has eroded the value of the current limits.Analysts, while commending the overdue concessions, point out that Mr. Jaitley could have been a little more generous.The Section 80C limit could have been hiked by Rs.1 lakh (as opposed to Rs. 50,000 now) given that the government is keen to divert household savings to financial instruments from physical assets.
For those who travel abroad, the Finance Minister has added an additional incentive in the form of a higher baggage allowance which goes up from Rs. 35,000 to Rs. 45,000.
The increase in basic exemption limits has been a long-standing demand.
B) The Government’s commitment to channelising the common man’s savings to revive the economy is clear from the introduction of new post-office savings schemes: the Kisan Vikas Patra (KVP), a National Savings Certificate (NSC) with insurance cover and a instrument to cater to the education and marriage of the girl child , apart from hiking the PPF investment limit to Rs. 1.5 lakh.
KVPs were a hit :The reintroduction of the KVP is a convincing step to rope in household savings. Before it was withdrawn December 2012 onwards, the KVPs accounted for one-fourth of the total inflows into all post-office schemes.
The increase in basic exemption limits has been a long-standing demand.
B) The Government’s commitment to channelising the common man’s savings to revive the economy is clear from the introduction of new post-office savings schemes: the Kisan Vikas Patra (KVP), a National Savings Certificate (NSC) with insurance cover and a instrument to cater to the education and marriage of the girl child , apart from hiking the PPF investment limit to Rs. 1.5 lakh.
KVPs were a hit :The reintroduction of the KVP is a convincing step to rope in household savings. Before it was withdrawn December 2012 onwards, the KVPs accounted for one-fourth of the total inflows into all post-office schemes.
With features such as no limit on the maximum investible amount, free transferability by virtue of being a bearer instrument, absence of TDS (tax deduction at source) on the interest and a promise of doubling the investment in eight years and seven months, KVPs were popular savings vehicle with investors. KVPs were also a hit with senior citizens as they were totally risk-free and had attractive interest rates.
A wide usage of the KVP for parking unaccounted money (given its opaque nature) had prompted the overnment to discontinue the scheme then. Its reintroduction is sure to attract interest, though it remains to be seen if all the original features are retained, given the earlier concerns.
Encouraging NSC :We need to wait for clarity on the features of the new NSC with insurance cover. Nevertheless, with post-offices having a wide reach and postal life insurance available only for state and PSU employees, the aim of this move seems to be to extend the benefits of insurance to the aam aadmi . But the choice of NSC to provide this insurance is competent enough to attract savers from all walks of life.
Encouraging NSC :We need to wait for clarity on the features of the new NSC with insurance cover. Nevertheless, with post-offices having a wide reach and postal life insurance available only for state and PSU employees, the aim of this move seems to be to extend the benefits of insurance to the aam aadmi . But the choice of NSC to provide this insurance is competent enough to attract savers from all walks of life.
Today, despite providing an interest rate of 8.5 per cent, the 5-year NSC will give higher post-tax yields than bank tax-saver deposits offering at least a 100 basis points higher. This is because, along with the 80C deduction on initial investments, every year’s interest earned on the NSC (except the fifth year’s) is considered a reinvestment and is not subject to tax.
Clarity on the scheme for the girl child is also awaited. At present only a few mutual fund schemes and ULIPs (unit-linked insurance plan) are available, if you want to earmark investments specifically directed towards your child’s future. But these are subject to stock market vagaries.
So, this risk-free scheme is, yet again, sure to attract attention. While all this appears enticing, it must be remembered that interest rates on all small savings schemes will be reset based on market rates as on April 1 each year. One can afford to be more nimble on their feet and invest elsewhere if the risk-return metrics available outside the post-office schemes prove to be more attractive.
C) Pre-Budget speculation was that he would do one or two concessions, but he did a hat-trick. Taken together, the annual tax savings from these three changes could go up to nearly Rs 39,000 for those in the top income bracket. Even for those in the 10% tax slab, the savings are a not-insignificant Rs 15,665.Here's how you can maximize your gains:
The basic exemption limit is to be increased from Rs 2 lakh to Rs 2.5 lakh and for senior citizens from Rs 2.5 lakh to Rs 3 lakh. The existing education cess of 3% and the surcharge of 10% for annual incomes of Rs 1 crore or more continue. The change in the exemption limit means that irrespective of whether you are in the 10%, 20% or 30% income tax slab, you save Rs 5,150 in taxes. If your income is a crore or more, you save Rs 5,665. There's a catch, though. For those aged 80 or more, the change in the exemption limit is irrelevant, since they are anyway eligible for a limit of Rs 5 lakh.
The maximum deduction under Section 80C, which covers investment options like provident fund, public provident fund (PPF), insurance policies and equity-linked savings schemes, is to increase from Rs 1 lakh to Rs 1.5 lakh. Since this means you can deduct an extra Rs 50,000 from your taxable income, the tax savings could go as high as Rs 16,995 depending on which tax slab you are in. Even at the lowest tax slab, this change will save you Rs 5,150 a year. The icing on the cake is that all of the Rs 1.5 lakh can be invested in PPF, which has been giving tax-free returns of about 8.5-9%. That's equivalent to a return of over 12% from an instrument whose returns are taxed like fixed deposits, the other option much favoured by risk-averse middle-class investors.
READ ALSO: Small savings cleared for take-off by 80C
The maximum deduction for payment of interest on home loans for self-occupied property is to go up from Rs 1.5 lakh to Rs 2 lakh. As in the case of Sec 80C, this will allow you to knock off Rs 50,000 from your taxable income and hence result in cutting your tax liability by anywhere between Rs 5,150 and Rs 16,995.
A couple of caveats need to be kept in mind. First, you must acquire or construct the property for which the loan has been taken within three years from the end of the financial year in which it was taken. Second, this provision really helps only in the early years of the repayment of home loans, since that is when the interest component tends to be high.
While it would seem that you will have to start paying tax the moment your income crosses Rs 2.5 lakh, in fact, it is theoretically possible to pay zero tax right up to an income of Rs 9.30 lakh. A very senior citizen (defined as someone above 80 years) doesn't pay any tax till Rs 5 lakh. If he or she were to take a home loan (that may seem improbable but can be done against collateral) for say Rs 90 lakh, there would be a tax saving on interest payment of up to Rs 2 lakh. Throw in the Rs 1.5 lakh exemption limit under Sec 80C, deduction of Rs 20,000 on medical insurance premium, and another Rs 60,000 on specified medical expenses and you get a neat tax-free sum that's over four times the apparent exemption limit. For those aged between 60 and 80, the corresponding figure would be Rs 7.10 lakh and for those aged below 60, it would be Rs 6.40 lakh (as the medical expenses limit is lower at Rs 40,000). Admittedly, some of these examples may seem a little stretched but they do serve to illustrate how misleading the official exemption limit is.
So, this risk-free scheme is, yet again, sure to attract attention. While all this appears enticing, it must be remembered that interest rates on all small savings schemes will be reset based on market rates as on April 1 each year. One can afford to be more nimble on their feet and invest elsewhere if the risk-return metrics available outside the post-office schemes prove to be more attractive.
Economic Times
C) Pre-Budget speculation was that he would do one or two concessions, but he did a hat-trick. Taken together, the annual tax savings from these three changes could go up to nearly Rs 39,000 for those in the top income bracket. Even for those in the 10% tax slab, the savings are a not-insignificant Rs 15,665.Here's how you can maximize your gains:
The basic exemption limit is to be increased from Rs 2 lakh to Rs 2.5 lakh and for senior citizens from Rs 2.5 lakh to Rs 3 lakh. The existing education cess of 3% and the surcharge of 10% for annual incomes of Rs 1 crore or more continue. The change in the exemption limit means that irrespective of whether you are in the 10%, 20% or 30% income tax slab, you save Rs 5,150 in taxes. If your income is a crore or more, you save Rs 5,665. There's a catch, though. For those aged 80 or more, the change in the exemption limit is irrelevant, since they are anyway eligible for a limit of Rs 5 lakh.
READ ALSO: Highlights of Union Budget
The maximum deduction under Section 80C, which covers investment options like provident fund, public provident fund (PPF), insurance policies and equity-linked savings schemes, is to increase from Rs 1 lakh to Rs 1.5 lakh. Since this means you can deduct an extra Rs 50,000 from your taxable income, the tax savings could go as high as Rs 16,995 depending on which tax slab you are in. Even at the lowest tax slab, this change will save you Rs 5,150 a year. The icing on the cake is that all of the Rs 1.5 lakh can be invested in PPF, which has been giving tax-free returns of about 8.5-9%. That's equivalent to a return of over 12% from an instrument whose returns are taxed like fixed deposits, the other option much favoured by risk-averse middle-class investors.
READ ALSO: Small savings cleared for take-off by 80C
The maximum deduction for payment of interest on home loans for self-occupied property is to go up from Rs 1.5 lakh to Rs 2 lakh. As in the case of Sec 80C, this will allow you to knock off Rs 50,000 from your taxable income and hence result in cutting your tax liability by anywhere between Rs 5,150 and Rs 16,995.
A couple of caveats need to be kept in mind. First, you must acquire or construct the property for which the loan has been taken within three years from the end of the financial year in which it was taken. Second, this provision really helps only in the early years of the repayment of home loans, since that is when the interest component tends to be high.
While it would seem that you will have to start paying tax the moment your income crosses Rs 2.5 lakh, in fact, it is theoretically possible to pay zero tax right up to an income of Rs 9.30 lakh. A very senior citizen (defined as someone above 80 years) doesn't pay any tax till Rs 5 lakh. If he or she were to take a home loan (that may seem improbable but can be done against collateral) for say Rs 90 lakh, there would be a tax saving on interest payment of up to Rs 2 lakh. Throw in the Rs 1.5 lakh exemption limit under Sec 80C, deduction of Rs 20,000 on medical insurance premium, and another Rs 60,000 on specified medical expenses and you get a neat tax-free sum that's over four times the apparent exemption limit. For those aged between 60 and 80, the corresponding figure would be Rs 7.10 lakh and for those aged below 60, it would be Rs 6.40 lakh (as the medical expenses limit is lower at Rs 40,000). Admittedly, some of these examples may seem a little stretched but they do serve to illustrate how misleading the official exemption limit is.
(Recd thru RB Kishore)