Here is a quick impact analysis of the Budget Proposals on Personal Finances.
1. Your NPS (National Pension System) contributions become more attractive :Till date, the contributions to NPS were to be taxed at the time of withdrawal… what is called as EET (Exempt from tax at Contribution, Exempt on Income but Taxed at Withdrawal). Now, 40% of your accumulation at the time of withdrawals will be tax exempt.
It is a great time for your employer and you to subscribe to NPS and start contributing for it.
2. Interest part on Recognized Provident Fund (RPF) gets taxed at Withdrawal now : Till date, RPF was entirely tax-free (at the time of withdrawal too). Now, the interest accrued on 60% of the contributions after April 1, 2016 will be taxed while the principal amount will remain tax exempt. This 60% will also be tax exempt if it is invested in a pension annuity scheme. This means more tax efficient withdrawal strategies need to be deployed at the time of contribution and withdrawal.
Note, the Public Provident Fund (PPF) continues to remain under EEE tax regime. No part of PPF will be taxed and the present scheme of investment up to Rs 1.5 lakh in a year will continue to be tax exempt. PPF on withdrawal will continue to be out of the tax ambit.
3. Tax boost for gold schemes : Sovereign Gold Bond Scheme and Gold Monetization Scheme have now got a tax boost. Both schemes pay interest. In the Gold Monetisation Scheme, this interest will now stand exempt from tax. The capital gains made on this scheme will also not suffer capital gains tax. On the Sovereign Gold Bond Scheme, the interest earned will continue to be taxed. But on redemption, you will not have to pay capital gains tax any longer. If you transfer the bonds before maturity, you will be able to claim indexation benefits on long term capital gains.
If you are looking for investing in Gold, instead of buying physical gold, you may look to invest through the Sovereign Gold Bond Scheme by the Reserve Bank of India (RBI).
4. Cheer for first time home buyers : Deduction for additional interest of Rs. 50,000 per annum has been granted for loans up to Rs. 35 lakh, sanctioned during the next financial year provided the value of the house does not exceed Rs. 50 lakh. Also, the assessee should not be owner of any other house.
5. Tenure increased u/s 24 : For claiming the deduction of interest under section (u/s) 24, for acquisition or construction of self-occupied house property, the time period has been increased from 3 years to 5 years. This is of significance in case there is a delay in delivery by builders.
6. Tax rebate increased for net income of upto Rs. 5 lakh : In order to lessen tax burden on individuals with income not exceeding Rs. 5 lakh, the ceiling of tax rebate has been increased under section 87A from Rs. 2,000 to Rs. 5,000. There are 2 crore tax payers in this category who will get a relief of Rs. 3,000 in their tax liability.
7. Tax relief on rent : The people who do not have any house of their own and also do not get any house rent allowance from any employer today get a deduction of Rs. 24,000 per annum from their income to compensate them for the rent they pay. The limit of deduction in respect of rent paid under 80GG has been increased from Rs. 24,000 per annum to Rs. 60,000 per annum, which should provide relief to those who live in rented houses.
8. Dividend tax on Dividends exceeding Rs. 10 lakh : Dividend incomes greater than Rs 10 lakh in a year for an individual will be taxed at 10%. This dividend is restricted to stock dividends and not those declared by mutual funds. Individuals getting impacted will need to consider more tax-efficient investment strategies.
9. Additional surcharge on super rich : The surcharge on super-rich (income of over Rs. 1 crore) has been hiked from 12% to 15%.
10. No change in tax slabs/rates : There is no change in the Income Tax Slabs / Rates for Financial Year 2016-17.
11. Revised advance tax payment installments : The advance tax now has to be paid by individuals in 4 installments viz.
| 15th June | 15% of the total tax liability |
| 15th September | 45% of the total tax liability |
| 15th December | 75% of the total tax liability |
| 15th March | 100% of the total tax liability |
12. Tight Fiscal Control has potential benefit for all : The Budget 2016 has stuck to fiscal consolidation path, which would help reduce interest rates going forward. If interest rates reduce, there is a scope of reduction of EMI (equated monthly instalments) and interest on loans.