After the formation of the Modi government in the center in May 2014, the next big thing was the budget. Media reports were full of the expectations from the Budget 2014. Finally the budget was presented by Finance Minister – Arun Jaitely. And as it happens with every budget, there were few good points, few bad and some worse one.
In this post I would highlight the impact of budget 2014 on your Money, Taxes and Savings.
Budget 2014 has proposed 3 main changes in Income tax:
1. Increase of Rs 50,000 in exemption limit for income tax – The exemption limit on income tax has been hiked from Rs 2 Lakhs to Rs 2.5 lakhs for general public and from Rs 2.5 lakhs to Rs 3 lakhs for senior citizens. However there has been no change for very senior citizens.
This would lead to maximum tax saving of Rs. 5,150 for people with age less than 80 Years and with taxable income of Rs 1 crore. There is no change in the income tax slabs and education cess of 3%. So the new Income tax Slab for FY 2014-15 would look like this:
2. Increase in exemption claimed (under section) u/s 80C by Rs 50,000 – The exemption limit u/s 80C has been raised from Rs 1 Lakh to Rs 1.5 Lakhs.
This can lead to maximum savings of Rs 15,450 depending on your tax slab. Below is the list of investments that you can invest for 80C benefit:
3. Increase in tax benefit against payment of interest on home loan – The tax exemption on interest of housing loan has been increased from Rs 1.5 lakhs to Rs 2 lakhs. This was desperately needed due to ever increasing house prices and high interest rates. This can additionally lead to maximum savings of Rs 15,450 depending on your tax slab.
So with all 3 changes above you can get save up to Rs 36,050 for FY 2014-15 [for net taxable income of less than 1 crore]. For net taxable income of more than 1 crore, the saving would be Rs 39,655.
4. Advance received and forfeited for transfer of a capital asset such as real estate to be treated as “Income from other Sources” – There are instances when advance is paid for purchase of an asset like house but due to some issues the transfer is not complete and the advance amount is forfeited by the seller. Now this forfeited advance amount would be considered as “Income from other Sources” and taxed accordingly
5. Tax efficiency of Debt Mutual Funds reduced – The tax on Long Term capital gains have been changed to 20% with indexation benefit. Earlier it was lesser of (20% with indexation benefit or flat 10% on gains). The other major change is to qualify for Long term capital gains the time frame has been increased from 12 months to 36 months. This would impact the FMPs and people who invested in debt mutual funds for 1-3 years. This change is applicable to all Mutual Funds other than Equity mutual funds (i.e. MF with more than 65% in its portfolio).
6. The maximum limit for investment in Long Term Capital Gain Bonds has been capped at Rs 50 Lakhs. Earlier people used to take advantage of investing Rs 50 Lakhs each in two consecutive financial years leading to saving up to Rs 1 crore of long term capital gains. Now this cannot exceed Rs 50 Lakhs irrespective on investment time frame.
7. Tax on Gross Dividend rather than net Dividend – earlier while paying dividends the debt mutual funds paid tax of 25% (and 10% surcharge + 3% education cess) on net dividend paid. Going forward this would be paid on Gross Dividend. This would lead to slightly lower dividends now!
8. TDS on Life insurance Payout – From October 1, 2014 the life insurance payouts of more than Rs 1 lakh in a financial year and not qualifying for tax exemption u/s 10(10D), a TDS of 2% would be deducted. So next time you invest check if your life insurance gets the benefit of Section 10(10D). There are still life insurances sold today which do not qualify for above tax benefit.
9. Maximum limit for PPF investment increased – PPF (Public provident Fund) is one of the best and most popular investments for saving taxes. Now the investment limit has been increased from Rs 1 lakh to Rs. 1.5 Lakhs per year.
10. Kisan Vikas Patra (KVP) to be reintroduced – KVP or a similar instrument is going to be reintroduced again. The details are still awaited. This is targeted to mainly channel the savings of unbanked population.
11. New Saving instrument for Girl Child – A new saving instrument may be introduced for encourage savings towards education and marriage of girl child.
12. Varishth Pension Bima Yojna to be re launched for citizens aged 60 & above. This is a kind of annuity scheme for senior citizens. The scheme would be launched by August 15, 2014
13. The minimum pension under Employee Pension Scheme (EPS) has been enhanced to Rs 1,000 per month.
Ease of investment:
14. Uniform KYC for all Financial institutions – KYC (know your Customers) has been a real pain point for all investors in India. Now to simplify the KYC norms, all financial investments would be possible on a common KYC. Once this is implemented anyone with bank account would be able to invest in different financial instruments like Mutual Funds, Insurance, etc without additional KYC.
15. Single Demat for various instruments – Finance Minister has proposed plans to use single Demat account for all kind of investment. This is logical and a good solution. The details are still awaited.
16. Unified Account by EPFO – EPFO, the organization that manages EPF would launch unified account which would make tracking and transferring EPF easier.
17. Free baggage allowance has been increased by 10,000 from Rs 35,000 to Rs 45,000.
Let us know how has budget 2014 impacted you?