Highlights of Budget 2015 for a Retail Investor & Taxpayer

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.

28 thoughts on “Highlights of Budget 2015 for a Retail Investor & Taxpayer”

  1. Any increase in Children Education Allowance : Sec. 10(14) in this budget..looks like @ very less amount being allowed..

  2. I am a computer engineer and still new to the world of finance. However, from most of my readings I have gathered that lower interest rates cause people to borrow more. More money in the economy leads to higher inflation rates. The RBI has been given an inflation target of 6% by Jan and lower henceforth. So why have they lowered the interest rate by 0.25%? Won’t this cause more inflation ?

    1. Inflation has been a worry for the RBI, but lower crude prices is helping in this matter and RBI is hopeful that by Jan 2016, inflation will be lower than 6%. Moreover, RBI has cut interest rates as it is now more concerned about falling growth. IIP data, GDP data & other data are showing weak economic growth in that country. That is why Repo Rate has been cut by the RBI.

  3. Also one question about perpetual bonds…
    How do they differ from normal bonds??

    Bcoz they also have a maurity , I dint actually get the sense out of their perpetuity!!!

    Plz share sum info.

  4. Government will come with tax free bonds in the coming year.

    Is it a good news or bad?

    What impact so you see on secondary market bonds?

    What could be the expected coupon ??
    N impact on yeilds?


    1. Hi Priyanka,
      It is a mildly positive news that tax-free bonds will be available again for public subscription. But, there are many things which need to be looked upon before rejoicing – Methodology with which their coupon rates will be determined, how soon these bonds will get launched, duration of these bonds and the rate of inflation when these bonds get issued.

      In the immediate short term, I think tax-free bond yields should rise. But, in the medium to long-term there should be a fall in yields as inflation, fiscal deficit & interest rates fall.

  5. dear shiv I have a doubt I have a rd of 1000 of 120 months in bob at 9% the total amount invested will be 120000 &maturity is about 195000 &the interest earn 195000-120000 =75000 in 10 years@75000÷10=7500 now in this senario the interst is not exdendind to 10000 yearly weather I am free from submiting 15h&15g form &my bank will not dedute any tds till maturity

  6. This is really not a good budget for salaried class. Increasing Service Tax is quite unfair, automatically increases all prices.

    1. I think it is a neutral budget, nothing great, nothing bad. But, execution is the key. Though service tax has been hiked, certain exemptions have been extended and it will cover our outgo on service tax. Looking at the bigger picture, if things go as intended & policies are executed in an efficient manner, I hope we’ll have a good year ahead.

  7. Hello Shiv,

    80CCD has two sections: 80CCD (1) and 80CCD (2).

    80CCD (1) is for contribution made by self to NPS. Does the extra Rs. 50,000 contribution (above and beyond the Rs. 1,50,000 under 80C) apply to 80CCD (1)?

    1. Hi,
      Yes, it seems you are right. NPS contribution of Rs. 50,000 will also be applicable to individuals other than employees u/s. 80CCD (1). I’ll update it soon here.

      1. suppose i put 1.5 lakhs in PPF and then 50 L in nps. Will I get 2 L exemption ? Please note that my employer is not contributing to NPS.

          1. I beleive both the scehmes are coming under 80C..In that case toal exemption would be 150000.Am i missing anything here.

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