This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in
Big Budget Day is over. Some are happy with the budget, some are not. Some are terming it to be rich people’s budget, but the finance minister is claiming it to be pro poor as it will help in high government spending and thereby job creation. What all is there for the Indian investors and taxpayers in this budget, I’ve tried to cover some of its important proposals.
No Change in Income-Tax Slabs – In July last year, the Finance Minister gave multiple tax reliefs in the form of higher basic income tax exemption, higher 80C deduction limit and higher exemption for interest paid on home loans. This year, he has been less generous. Most importantly, he has left the income tax slab limits completely untouched. Though a slew of tax saving measures have been announced, but it would cover a very small percentage of population.
Additional Exemption of Rs. 50,000 for NPS u/s 80CCD – There is a gift for the taxpayers in the form of additional exemption of Rs. 50,000 u/s 80CCD. This exemption will be over and above Rs. 1,50,000 exemption u/s 80C. You just need to invest this amount in New Pension Scheme (NPS).
Moreover, if you are a salaried individual and if your employer is already contributing or is ready to contribute to your NPS account, here is a good news for you. The limit for employers’ contribution to NPS under section 80CCD has been raised by Rs. 50,000 to Rs. 1,50,000 as compared to Rs. 1,00,000 earlier.
Wealth Tax Abolished – I think the decision to abolish wealth tax is a very welcome move. Firstly, I think most Indian taxpayers do not understand wealth tax laws. Moreover, I think less than 1% of our total tax paying population was actually paying wealth tax earlier. So, the Finance Minister has decided to phase out something which was not making any meaning contribution to his tax kitty and creating unnecessary confusion among the taxpayers.
However, to compensate for his revenue loss, the Finance Minister has decided to levy 2% additional surcharge on the super rich individuals having annual income of Rs. 1 crore or more. This is easy to understand and quite practical as well.
Service Tax Exemption for Varishtha Pension Bima Yojana – LIC’s immediate annuity pension plan for senior citizens, Varishtha Pension Bima Yojana, has also been made a little more attractive as it has been moved out of the service tax coverage. This scheme was already generating a guaranteed return of 9% to 9.38% return for its investors. With this exemption, it is going to earn higher returns for its investors.
Tax-Free Bonds for Road, Railway & Irrigation Projects – Finance Minister has announced the reintroduction of tax-free infrastructure bonds. But, as the details have not been announced, it is difficult to guess the form in which these bonds will be launched. Whether only the interest will be tax-exempt or the investment amount will be subject to tax deduction, like 80CCF infrastructure bonds and whether these bonds will be available for public investment or not, all these are the questions which will get answered in a few days time.
Sukanya Samriddhi Scheme Gets Tax-Free Status – Sukanya Samriddhi Scheme, which got launched on January 22nd this year, has been made more attractive by making its interest income and maturity proceeds fully tax exempt like PPF. This scheme is currently generating 9.1% return for its investors in the current financial year, which makes it the highest tax-free income generating scheme. But, the rate of interest is subject to revision every financial year. So, if your girl child is 10 years or below, you can take advantage of this scheme. I’ll cover this scheme in detail next week here.
Gold Monetisation Scheme, Sovereign Gold Bond and Indian Gold Coin to be launched – The government has decided to introduce Gold Monetisation Scheme, in which the depositors will be able to earn interest in their metal accounts. What would be the rate of interest, it is yet to be announced.
Another alternate, in the form of Sovereign Gold Bond, will also be launched. The bond will carry a fixed rate of interest which will be announced at a later date, and also be redeemable in case in terms of the face value of the gold, at the time of redemption by the holder of the Bond.
Moreover, an Indian Gold Coin, which will carry the Ashok Chakra on it, will also be launched. Such an Indian Gold Coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country.
80D Exemption Raised by Rs. 10,000 – The Finance Minister has also increased the deduction limit on health insurance premium under section 80D to Rs. 25,000 from Rs. 15,000 earlier. In case of senior citizens, this limit has been raised from Rs. 20,000 to Rs. 30,000. So, at a time when the medical expenses are rising at a high speed, this move should encourage people to go for a higher medical cover.
Exemption Limit for Transport Allowance Raised to Rs. 1,600 – The Finance Minister has also decided to double the exemption limit for transport allowance from Rs. 800 per month or Rs. 9,600 per year to Rs. 1,600 per month or Rs. 19,200 per year. This would leave a handful of extra money with the salaried taxpayers.
Service Tax increased to 14% – Taxpayers should also get psychologically ready to pay more for the services they use. The Finance Minister has raised the rate of service tax to 14% from its earlier base rate of 12% + cess of 0.36%.
Budget 2015 has been able to bring smiles on the faces of Indian stock market investors as it was up in the yesterday’s special trading session. Will this momentum sustain amid poor corporate earnings or will this budget be able to change the fortunes of corporate earnings in the quarters to come? It is all up to be seen in the coming months and quarters. Lets wait & watch.