MODIfied Budget 2014 gives reasons to cheer to Aam Aadmi!
Mayur Shah, Executive Director – Tax & Regulatory Services, EY
The change in the political scenario and increasing confidence in the Indian economy by a common man had created widespread expectations from the Budget 2014. Right from relaxation in price hikes to better facilities, the government was expected to bring about changes to ease the pressure on a middle class individual under the current economic condition. Post the Budget speech by Hon’ble Finance Minister, the MODIfied government has created a win-win situation for an individual by meeting some of his expectations. Key highlights of the budget that impact a common man are:
Upto INR 250,000*
INR 250,001 to INR 5,00,000
INR 5,00,001 to INR 10,00,000
Above INR 10,00,000
Exemption limit enhanced: The exemption limit upto which no income would be chargeable to tax has been increased from INR 2,00,000 to INR 2,50,000 for individuals below the age of 60 years. For individuals who are of the age of 60 years or more the exemption limit is increased from INR 2,50,000 to INR 3,00,000.Although no change has been made in the rate of tax.
Education cess @ 3% applies additionally on the above tax amount
* For resident ‘very senior’ citizens (80 years or above), INR 250,000 is replaced by INR 5,00,000
Illustrative examples of investments
Increase in Section 80C limit: To encourage more household savings, the tax savings investment limit under Section 80C is increased from INR 1,00,000 to INR 1,50,000. The investments under this section include life insurance premium, investments in public provident fund, employees provident fund etc. This will allow more disposable cash and spending power in hands of taxpayers.
Increase in limit to contribute to Public Provident Fund: The existing limit of investment in the public provident fund has been increased from INR 1,00,000 to INR 1,50,000. This increases the scope of making tax saving investment.
Increase in deduction for interest on housing loan: Considering that the rates for residential properties have shot up significantly over the past few years, to provide relief to the tax payer, the deduction for interest on housing loan paid on self-occupied property has been increased from INR 150,000 to INR 2,00,000.
Capital gain exemption available only for investment in a house in India: To encourage people to invest in residential house property in India and not elsewhere, capital gains exemption from transfer of long term capital asset will be available if investment is made in a house property situated only in India within the stipulated period.
Advance money received on transfer of property now taxable: Advance money received in the course of negotiation for transfer of asset such as house property, would now be taxable as income from other sources if the advance is forfeited on cancellation of the deal.
Payments from LIC now subject to TDS: Non-exempt payment from LIC exceeding INR 1,00,000 would be subject to tax deduction at source @ 2 %.
Change in holding period of an unlisted security and unit of mutual fund (other than equity oriented mutual fund): The holding period for classifying securities other than listed on Indian recognised stock exchange such as shares of private companies and unit of debt oriented mutual fund as ‘short term capital asset’ is increased from 12 months to 36 months. This could impact foreign securities even though listed overseas and private deals.
Long Term capital gains from transfer of units of mutual fund (other than equity oriented) shall be taxed at 20% instead of 10%.
The Government has kept in mind the needs of a common man while proposing the changes. However, no policies are framed on proposals made by the FM during his speech on advance ruling for residents to reduce litigation cost and policies on curbing of black money. Overall, the budget has articulated various measures to facilitate and boost savings and encourage investment amongst the masses. However, in a country that requires betterment it is only just that we take the onus on ourselves as responsible Indian citizens and pay our taxes on time so that our money can be grown and used for a better India!
(Vidhya Parmar, Senior Tax Professional, EY contributed to the article)