The Budget 2016-17, as do most Budgets, evoked mixed feelings. The common man might have heaved a sigh of relief with the many friendly reforms, but the salaried class remains a harried lot as the PF withdrawal, for the first time, has been made partially taxable.
What is the road ahead? Where is tweaking needed while parking one’s personal money? How can one take advantage of the sops offered? What all does one consider while taking a decision on future investments? These are the questions every taxpaying individual and retail investor would now be having in mind.
The Budget touches a few highs and lows as far as personal finance is concerned, and one needs to be aware of them in order to optimise on one’s investment plans.
More money in the bag?
The predominating questions at the top of everyone’s minds, and perhaps rightly so, are: What are the savings possible with this year’s Budget? Do the new Budget proposals tighten or loosen one’s purse strings?
To begin with, income tax slabs are unchanged. This may not be music to taxpayers’ ears as there were expectations that the tax regime would be revised to benefit the common man. However, there is good news as well. Taxpayers with earnings up to Rs 5 lakhs can now get a higher tax rebate of Rs 5,000 under Section 87A. So, individuals coming under this bracket have more money at their disposal, which could be invested or spent on essentials.
The tax rebate of 40 per cent on the withdrawals from the National Pension System (NPS) has made this an attractive investment option. Also, if one is looking to buy their first home, this is the right time. The Budget has proposed an additional exemption of Rs 50,000 for housing loans up to Rs 35 lakh, provided the cost of the house does not cross the limit of Rs 50 lakh.
A drain indeed
When it comes to tax on PF withdrawal, it is quite depressing for the common taxpayer. For the first time, EPF withdrawals have been taxed, and that too at 60 per cent on the retirement corpus created from the Employees’ Provident Fund. PF is usually viewed as savings for the salaried class, and tax on PF withdrawals means that ultimately there is a drain in the savings. Hence, this move may not go down well with the salaried class. At the time of this article going to press, there were expectations of the government rolling back this measure either fully or partially owing to feedback from the public. The hike in the service tax to 15 per cent on all taxable services can a burn a hole in one’s pocket while availing many services.
Sheen off gold jewellery
With the Finance Minister proposing an excise duty of one per cent duty on gold jewellery, it is bound to be costlier and lose its luster. It may be prudent to keep new purchases of gold jewellery off your investment wish list for the moment. However, the interest from sovereign gold bonds and deposits under the Gold Monetisation Scheme (GMS) will not attract any tax. So, going with the Indian craving for the yellow metal, these are good investment options.
Benefits the Aadhaar way
Finally, the government has decided to give statutory status to Aadhaar. This is to ensure that the benefits of the government subsidies reach the right person without fail. The move will also help identify the needy and the vulnerable, and transfer benefits to them through the direct benefit transfer system, which was found quite effective in transferring the subsidies relating to cooking gas.
More progressive budget in terms of finance
In personal finance, the common man has much to cheer for from the Budget. The move to scrap dividend distribution tax in relation to Real Estate Investment Trust can infuse more capital into the real estate sector and this option could be a good place to park money for good returns too.
Additionally, the Finance Minister’s announcement to offer of tax rebate on housing rent of Rs. 60,000 per annum instead of the current limit of Rs 24,000 hits the right notes for those who do not own a house and live on rent, to save some money.
But people in the rich and super-rich brackets have to shell out more tax, with the government proposing a tax of 10 per cent on dividend income if it is over Rs 10 lakh. Moreover, disposable income of the super-rich will be less as the surcharge has been increased to 15 per cent for income above Rs one crore. The earlier surcharge rate was 12 per cent.
Now let us see how the budget impacts different segments of investors and taxpayers.
Mostly a mixed bag for the common man
- Additional tax benefits of Rs.50,000 for home loan under 35 lakhs under Section 24B.
- More fund allocation for education financing, which means availability of affordable education loans
- Small taxpayers earning less than Rs. 5 Lakhs can now get an additional tax deduction of Rs. 3000, considering the ceiling under Section 87 (a) from Rs 2000 to Rs 5000.
- An additional tax savings of Rs. 3,600 for taxpayers in the 10% tax bracket, with the announcement of tax rebate on housing rent of Rs. 60,000 per annum instead of the current limit of Rs 24,000.
- Reduction in holding period from 3 years to 2 years for exemption from tax on Long Term Capital Gains (LTCG) from shares of unlisted companies to make it easier for investors to realize the gains from their investment.
- Move towards paperless financial transactions sure to make investments easier and more customer-friendly.
- Taxability of EPF a sore point with the salaried classes.
The super-rich to feel the pinch
- A 15% surcharge on income tax for those with incomes exceeding 1 crore.
- High net worth investors with an annual dividend income of Rs.10 Lakhs above to pay 10% dividend tax.
- Buyers to pay an additional 1% tax on luxury goods and cars exceeding Rs. 10 Lakhs.
Entrepreneurs have it good
The budget is sure to enthuse all those who wish to pursue a career as entrepreneurs.
The allocation of Rs 500 crore for Start-up India and Stand Up India programs, 3-year tax sops and other benefits like easy foreign fund raising for startups, all these are likely to bring in more funds and better savings for young entrepreneurs.
The intention of the government, on the whole, appears to be to put more money in the hands of the people. The implementation of the same, as well as shifting macroeconomic winds, will determine the success of this year’s Budget, which has been hailed as solid and innovative by industry and common man alike.
Illustration: Uttam Ghosh/Rediff.com
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