*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
All eyes were on Mr. Arun Jaitley on 28 Feb 2015, with everyone waiting to know what was in store for them. Overall it seemed to be a pretty balanced budget with no bias for populist measures that drain the economy in the long term. In this post, however, I would like to decode the budget's impact - both positive and negative - on tax-paying salaried professionals.
1. You can invest an additional amount of Rs 50,000 in the New Pension Scheme (under Section 80CCD) over and above the limit of Rs 1.5 lakh under Section 80C.
2. The deduction available for health insurance premium has been raised to Rs 25,000 from the earlier limit of Rs 15,000.
3. The government has abolished wealth tax. That is, you will no longer have to pay tax on your idle assets (such as gold, vacant house, expensive watches and hard cash) whose combined worth exceeds Rs 30 lakhs.
4. You can now choose to contribute in either Employees Provident Fund (EPF) or the New Pension Scheme (NPS). And, if you choose NPS, your employer will still have to continue contributing to the EPF. I think it's a good step as it gives more flexibility to employees in choosing between EPF (secured investment, defined return) and NPS (similar to mutual funds with option of debt and equity with very low fund management charges - perhaps the lowest in the world). The next step should be to simplify the process of NPS account opening, and over a longer term, think of merging EPF, NPS and creating a single retirement instrument (with options within that).
5. You have more leeway to make tax-free withdrawals from Employees Provident Funds (EFPs) . That is, if the amount withdrawn is less than Rs 30,000 or your tax liability is nil even after adding the withdrawn sum to income.
6. The transport allowance has been doubled. Thus, from the earlier yearly amount of Rs 9,600, you stand to gain Rs 19, 200 per year.
7. For the fiscal year 2016, you can invest in infrastructure bonds which will offer tax-free interest.
8. The FM has proposed a plan to monetise gold via sovereign gold bonds and gold deposits. Though details are awaited, it seems like a good idea.
9. No tax on interest earned under Sukanya Samriddhi scheme (SSS). This makes SSS investments tax exempt at all stages (EEE), very similar to PPF investment. The interests are also declared annually (currently 9.1%) but this is less flexible than PPF in terms of withdrawal options.
10. Donations to Swachh Bharat or Clean India are 100% tax free. If you're donating to this cause, you can save 100% tax on the component donated.
11. The government wants to offer incentives on transactions made via debit or credit cards. However, it has yet to be seen what this will entail and how it will be implemented.
12. Interestingly, those earning up to Rs 7 lakh per annum can enjoy being fully "tax-free" if they capitalise on the options available intelligently and make the right investments.
1. Income tax slabs remain unchanged. So, you will continue to pay the same tax as per your salary bracket as before.
2. No increase in the tax deduction limit of Rs 1.5 lakh. The additional contribution of Rs 50,000 toward NPS notwithstanding, there were hopes that the government would raise this limit leaving more money in the hands of the salaried class.
3. It has been proposed if you prematurely withdraw more than Rs 30,000 from your EPF, tax deduction at 10% will be levied.
1. The government has hiked service tax: This increase will impact your household budget as everything from eating out and grooming to phone bills and grocery shopping will increase.
2. Increase in excise duty will affect consumer durables and electronic gadgets, making them more expensive.
3. Being super rich is going to hurt. If you happen to earn more than Rs 1 crore per annum you will have to pay an additional surcharge of 2%.