Budget 2015: A Common Man’s Perspective

When Finance Minister, Mr Arun Jaitley, presented the NDA government’s first full year budget on 28th February 2015, I was one of the millions of Indians who sat glued to their television sets to catch the budget highlights first hand.

To be honest, like most of individual tax payers out there, I was expecting a hike in tax exemption limit which did not happen. Though I was disappointed when I heard what Mr. Jaitley had to say about this during his interview with the Lok Sabha TV, it made a lot of sense. The minister’s response quoted below is a very interesting read and sums up his reasons for doing what he did.

“Only three to four per cent of the country population pays taxes. In any country’s taxation system, the number of people paying income tax should go up and not reduce. I will not rule out increasing slabs, but I also have to see how much money the government has. And after paying the states so much, my fiscal space had reduced drastically. But instead of increasing slabs, I have tried to compel people to save. The savings in this country which have gone down to 19-20 percent have to be pushed back to 35-36 percent. Second, they should save for their future. Third, their savings will help the country develop. Therefore, if I just give them the freedom to go ahead and spend and make this a consumption society. I thought savings for the development of the country was a much better option.”

From the above we can safely conclude that the FM wants us to — Spend less and save more. To help us achieve this goal, a number of measures have been announced in the budget.

Tax Exemption Limits for Salaried Individuals

The present budget has proposed no changes in the income tax rates. However, the following changes regarding deductions / exemption allowed from total income of Salaried Employees under various Sections of the Income Tax Act have been announced. In fact, the total amount of income tax payable for the financial year may actually reduce for people eligible for these deductions despite the income tax rate remaining unchanged.

Transport allowance. The FM has hiked the tax exemption on transport allowance from Rs 800 to Rs 1600 a month. Effectively this translates into Rs 19200 annually.

Health insurance premium. The limit of reduction on health insurance premiums has been increased from Rs 15,000 to Rs 25,000.

For senior citizens, this limit has been increased from Rs 20,000 to Rs 30,000.

For very senior citizens (above 80 years) who cannot take health insurance, it is proposed to exempt Rs 30,000 annually for medical expenditure.

In case of specified diseases of very senior citizens, the tax deduction limit is Rs 80,000.

For differently-abled citizens, the limit of deduction for the medical expenditures has been enhanced from Rs 50,000 to Rs 75,000 per annum.

For people with severe disability exemption limit under this had has been enhanced from Rs 1 lac to Rs 1.25 lakhs.

NPS Investments. Salaried individuals investing 12% of their salary by default in Employees Provident Fund (EPF) have now been given a choice between investing in EPF or the National Pension Scheme (NPS). Both EPF and NPS are schemes where returns depend upon the performance of the funds. Whilst EPF invests in debt instruments, NPS gives an option to invest in securities to a limited extent. Financial experts thus believe that NPS is a better investment option.

Secondly, to provide a boost to pension sector, the tax incentive limit for investment in pension funds has been enhanced by Rs 50,000. The additional deduction of Rs 50,000 is proposed to be provided for contribution to the NPS under Section 80 CCD. As a result, the limit on deduction on account of contribution to a pension fund and the NPS has increased from Rs 1 lakh to Rs 1.5 lakhs. This move is aimed at ensuring that tax payers save money and park funds in pension products.

Sukanaya Samriddhi Scheme made eligible for deduction under Section 80C. By saving under the Sukanaya Samriddhi Scheme, a newly started savings scheme to encourage savings in the name of girl child’s education and marriage, an individual can claim deduction under Section 80C. However this is applicable for people with a girl child and all payments to the beneficiaries including interest payment is exempt from taxes under this scheme.

Details of proposed deductions for individuals below 60 years of age which adds up to Rs 4,40,200 is summarized as under.

Deduction u/s 80 CRs 1,50,000
Deduction u/s 80 CCDRs 50,000
Deduction on account of interest on house property loan(self-occupied property)Rs 2,00,000
Deduction us 80D on Health Insurance PremiumRs 25,000
Transport allowance exemptionRs 19200
TOTALRs 4,44,200

Other highlights

Investing in Gold. Hoarding gold in the form of ornaments, coins does not help an economy in any way. However Indians have a tendency to invest a sizeable portion of their income in this metal. Recognizing this fact and with a view to make gold investments work for the economy, the FM has introduced a Gold Monetisation Scheme. This scheme works just like a deposit scheme, where gold depositors earn an interest on their metal account. A Sovereign Gold Bond is also proposed to be launched as an alternative to purchasing the metal. The bonds will carry a fixed interest rate and will be redeemable in cash in terms of the face value of gold at the time of redemption by the bond holder.

The FM also proposes to develop an Indian Gold Coin with a view to reduce the demand for coins minted outside India.

Social Security System. A universal social security scheme has been proposed for all Indians. Under this scheme, the FM proposes to launch the Pradhan Mantri Suraksha Bhima Yojana, which will cover accidental death risk of Rs 2 lakh just at a premium of Rs 12 per annum.

Another program, a basic pension scheme for Indians who may not be in a position to put aside money for their old age – Atal Pension Yojana, aims to provide a defined pension, depending on the contribution made and time period. To encourage more and more people to join this scheme, the government has proposed to contribute 50% of the beneficiaries’ premium, limited to Rs 1,000 each year for 5 years in all the new accounts opened before 31-Dec-2015.

For people in the age group of 18-50 years, the Pradhan Mantri Jeevan Jyoti Beema Yojana will provide cover for both accidental as well as natural death of Rs 2 Lakh at a premium of Rs 330 per year.

Financial redress. The 2015 budget proposes to put in place a financial redress agency across all financial sector regulators (SEBI, RBI etc) to address investor grievances. Simply put, this means that there is no need for you to approach SEBI, RBI, or the Banking Ombudsman in case of an issue with a financial organization. For any complaint pertaining to your bank account, insurance policy, demat holdings etc, all that you will need to do is to register a complaint with the financial redress agency who will resolve the issue.

Benami transactions (Prohibition) bill. In line with BJP’s political promises, the FM plans to introduce a new and comprehensive Benami Transactions (Prohibition) Bill. The tough measures proposed under this law include jail up to 10 years for concealment of income and assets and evasion of tax in relation to foreign assets, and penalty at the rate of 300% of tax.

Infrastructure allocation. Total outlay of Rs. 70,000 crore has been made for the infrastructure sector which for the aam aadmi means more roads, better highways, rails, increased investment in research and development.

IT based Student Financial Aid Authority. To enable all poor and middle class students to pursue higher education of their choice without any financial constraints, a fully IT based Student Financial Aid Authority is proposed to be set up during the year 2015-16.

Safe India. For the security and empowerment of women, the Congress government had established the Nirbhaya Fund 2013. To stay committed to the cause of women’s safety, the current budget has allocated Rs 1,000 crores to this fund.

Service tax. On the flip side, service tax rate has been increased from 12.36 % to 14%. This will impact a number of spending habits of the middle class like eating out, grooming (beauty parlor, spa), movies, phone bills and grocery shopping etc.

TDS on Deposits. If interest earned on Recurring Deposits (RD) exceeds Rs 10,000 annually, TDS @ 10% would be deducted by the bank. Interest earned on deposits in cooperative banks has also been brought under TDS.

Financial Transactions. PAN would be mandatory for all transactions exceeding Rs 1 lakh. Cash payment or acceptance in excess of Rs 20,000 for immovable property is prohibited.

Wealth tax abolished. Instead, the surcharge has been increased by 2% to 12 per cent on wealthy individuals earning Rs 1 crore and above annually.

In Conclusion

To conclude there have been quite a few firsts, in this budget. Various tax measures and personal savings schemes aimed at benefiting the taxpayer and common man have been announced. These measures no doubt will help people reduce their tax liability and save for their future.

Also at the macro level, these measures will help the economy achieve a higher growth rate. However a major grievance, purely from a common man’s perspective, is that the budget proposals have not done much to increase the disposable incomes available at the hands of the people. In fact, the rise in service tax rate will adversely impact the middle class spending.

Having said that, in my opinion, full credit must be given to the FM for coming out with a budget which is has a clear vision, is growth oriented and tells the common man how to spend less and save more for a better future!

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