Komal Agarwal hasn’t stopped smiling since Finance Minister Arun Jaitley tabled his maiden Budget in Parliament on 10 July. The Delhibased finance professional will see her tax liability reduced by almost Rs 10,000 this year, thanks to a higher basic exemption and an enhanced deduction for investments under Section 80C.
“I can save more, so my tax will be down to Rs 2,000 or so,” she says.
Indeed, the Budget lived up to the BJP’s promise of ushering in achche din. The basic exemption limit for ordinary taxpayers has been raised from Rs 2 lakh to Rs 2.5 lakh. For senior citizens above 60 years, the limit has been increased from Rs 2.5 lakh to Rs 3 lakh.
There is no change in the Rs 5 lakh tax exemption for very senior citizens above 80 years old. The Budget has also enhanced the annual deduction available under Section 80C from Rs 1 lakh to Rs 1.5 lakh. This was a longpending demand of taxpayers. The Rs 1 lakh limit was set nearly a decade ago and gets exhausted quickly due to the multiplicity of investments under Section 80C.
Cut tax by saving more The proposed changes can lead to significant tax savings for those who can save more under Section 80C. The taxpayers earning more than Rs 10 lakh a year stand to save up to Rs 20,000 a year in tax. The raising of the basic exemption limit by Rs 50,000 will save Rs 5,000 in tax, while the Rs 50,000 increase in the investment limit under Section 80C will help them save another Rs 15,000.
However, the potential tax savings are lesser for those in the lower tax brackets. Taxpayers earning up to Rs 10 lakh a year will be able to save Rs 15,000, while those with an income of up to Rs 5 lakh a year will save a maximum of Rs 10,000 in tax. This, if they can find the additional Rs 50,000 to invest in Section 80C options.
However, those in the lowest tax bracket still have something to smile about. The budget has not removed the Rs 2,000 tax relief given in Budget 2013 to those earning below Rs 5 lakh a year. This means that individuals earning up to Rs 4.2 lakh a year and investing Rs 1.5 lakh under Section 80C will go out of the tax net.
Home loan benefits The finance minister also announced additional tax benefits for home loan customers, increasing the deduction from Rs 1.5 lakh to Rs 2 lakh a year.
In Pune, IT professional Rajesh Varma and his schoolteacher wife, Suruchi Mishra (see picture), are busy calculating their savings under the new tax structure. Besides the higher basic exemption and deduction under Section 80C, the couple has a joint home loan, which means their annual tax savings are close to Rs 35,000. “This Budget has been very beneficial for taxpayers like us,” says Varma.
While middle-class taxpayers have welcomed the Budget, superrich taxpayers might be sulking. The finance minister has retained the tax structure of the previous year, including 10% surcharge on tax for those with an income of over Rs 1 crore. The then finance minister P Chidambaram had introduced the ‘Robin Hood’ surcharge in 2013 as a one-time measure. This year’s Budget has extended the levy.
The rich taxpayers will also have to contend with the changes in tax rules relating to debt funds. Delhi-based salaried professional Pankaj Gulati is happy that the Budget has extended the Section 80C limit and raised the basic exemption, but is miffed with the change in rules on debt funds.
Till now, one could invest in debt funds and get taxed at a lower rate after a year. The Budget has increased the minimum holding period to three years, which will curtail liquidity. Also, the option to pay a flat 10% tax has been removed. “Investors will no longer have a choice between flat 10% and 20% after indexation. The latter will become the norm,” says Divya Baweja, partner, Deloitte Haskins and Sells.