Providing much needed relief to taxpayers burdened with high inflation, the budget increased the
exemption level on personal income tax by Rs 50,000. Thus the exemption limit has been raised from existing Rs 2 lakh to Rs 2.5 lakh for male and female assessees and from Rs 2.5 lakh to Rs 3 lakh for senior citizens. In addition, the budget has also increased the exemption under Section 80C from Rs 1 lakh to Rs 1.5 lakh. Besides, it also raised the deduction limit on interest paid on a home loan from Rs 1.5 lakh to Rs 2 lakh. Contribution towards public provident fund (PPF) has also been increased to Rs 1.5 lakh from the current Rs 1 lakh. The budget did not make any change in the tax rate, surcharge and education cess.
Effective April 1, 2015, investments that qualify for deduction under Section 80C of the Income-Tax Act will now have an overall ceiling of Rs 1.5 lakh, up from Rs 1 lakh earlier. That means your investments under this section — including PPF, tax-saving mutual funds, housing loan repayment (principal), five-year and above tenure fixed deposits, provident funds, National Savings Certificate and life insurance policy premiums can be increased by Rs 50,000.
Pankaaj Maalde, a certified financial planner explains, “Irrespective of which tax bracket you are in, hiking the personal income tax exemption level by Rs 50,000 results in a saving of at least Rs 5,150 per annum for all. If a person invests Rs 1.5 lakh under Section 80C, it results in a further tax saving of Rs 5,150 for those in the 10 per cent tax slab, Rs 10,300 for people under 20 per cent tax slab and a saving of Rs 15,450 for those in the 30 per cent tax bracket.”
A person who has taken a home loan of Rs 20 lakh and above in respect of a self-occupied house property would qualify for a deduction of Rs 2 lakh against the earlier limit of Rs 1.5 lakh. The increase in deduction limit results in a saving of Rs 5,150 for those in 10 per cent tax slab, Rs 10,300 for those in 20 per cent tax bracket and 15,450 for those in the 30 per cent tax slab.
“All these exemptions if fully utilised would result in a total saving of Rs 15,450 for those in 10 per cent tax slab, Rs 25,750 for those in the 20 per cent tax slab and Rs 36,050 for those in the 30 per cent slab,” added Maalde.
“In the year 2012-13, the gross domestic savings were 30.1 per cent of the GDP as compared to 33.7 per cent in the year 2009-10. Increase in savings and their productive use leads to higher economic growth. Households are the main contributors to savings,” said finance minister Arun Jaitley while announcing the tax benefits.
“Net effect of the direct tax proposals is revenue loss of Rs 22,200 crore,” said Jaitley.
The finance minister also re-introduced Kisan Vikas Patra, saying it was a very popular instrument among small savers. “I plan to reintroduce the instrument to encourage people who may have banked and unbanked savings to invest in this instrument,” he said.
Jaitley said that a national savings certificate with insurance cover will also be launched to provide additional benefits for the small saver. Also, a special small savings instrument to cater to the requirements of education and marriage of the girl child will be introduced.
Tarun Chugh, MD & CEO, PNB MetLife Insurance said, “We are encouraged by the increase in the limit of Section 80C to 1.5 lakh. While we would have looked forward to a separate limit for life Insurance, we are sure this will help the retail customers who will benefit from the enhanced tax benefit on savings products including life Insurance.”
Vikas Vasal, KPMG partner (tax) in India said, “The increase in popular tax deduction u/s 80C from Rs 1 lakh to Rs 1.5 lakh will help achieve twin objectives of encouraging households to make long-term savings, and also increase the overall savings rate in the economy. Increase in deduction for interest paid on housing loan for a self-occupied house property from Rs 1.5 lakh to Rs 2 lakh will provide a boost to the housing and banking sectors and increase job opportunities for unskilled and semi-skilled workers.
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