Saturday, 28 February 2015

Indian Budget 2015: An Insight

Today our Hon’able Finance Minister, Mr. Arun Jaitley announced the budget for the Financial Year 2015-16. In this post I will highlight the major announcements made by him in respect of Economy as well as changes in Direct Tax regime which would impact Individual Tax Payers. Overall the budget did not see any major makeshift but the announcements suggested that the Government is looking to make India an investment friendly destination. The budget did focus on Growth and bringing down the fiscal deficit which augurs well for the economy in the long run. But the larger section of the society, i.e the Middle Class may not have much to cheer about.

Announcements on Economy Front:-
  • Fiscal deficit seen at 3.9 percent of GDP in 2015-16.
  • Current Account Deficit (CAD) below 1.3 percent of GDP.
  • GDP growth seen at between 8% -8.5% for the Financial Year 2015-16.
  • Rs. 70,000 crores to Infrastructure sector.
  • Tax-free bonds for projects in rail road and irrigation
  • Proposes to cut to 25 percent corporate tax over next four years.
  • Monetary policy framework agreement with the RBI clearly states objective of keeping inflation below 6 percent.
  • Revenue deficit seen at 2.8 percent of GDP.
  • Government targets 410 billion rupees ($6.7 billion) from stake sales in companies in 2015/16.
  • Service Tax rate increased to 14 per cent.
  • 2% Swachh Bharat Cess on Service Tax.
  • Foreign exchange reserves have risen to $340 billion.
  • Propose to merge commodities regulator Forward Markets Commission (FMC) with SEBI.
  • Proposes modification of permanent establishment norms so that the mere presence of a fund manager in India would not constitute a permanent establishment of the offshore fund, resulting in adverse tax consequences.
  • Do away with different types of foreign investment — like FPI and FDI — and replace them with a comprehensive type.
  • Develop Sovereign Gold Bond, as an alternative to purchasing metal gold.
  • To set up public debt management agency.
Announcements Impacting Individual Tax Payers:-
  • Abolition of Wealth Tax.
  • Additional 2% surcharge for the super rich with income of over Rs. 1 crore.
  • Total exemption of up to Rs. 4,44,200 can be achieved.
  • EPF - Employee may opt for EPF or new pension scheme, employee's contribution to EPF below an income threshold will be optional without reducing employer's contribution.
  • Increase in limit of deduction of health insurance premium of Rs. 15,000 to Rs. 25,000. For senior citizens, limit will be Rs. 30,000. For Very senior citizens Rs. 30,000 deduction will be available on expenses incurred.
  • Transport allowance exemption to be increased to Rs. 1,600 per month.
  • Rs. 50,000 contribution to New Pension Scheme (NPS) to be allowed as deduction Under Section 80 CCD and will be available over and above the deduction of Rs 1,50,000/- available U/S 80C. Even deduction u/s 80CCD for Pension Schemes has been raised by Rs50,000/- but the overall limit remains Rs1,50,000/-.
How can saving of Rs 4,44,200 be achieved?

Income Exempt from Tax                          : Rs 2,50,000/- (Same as Earlier)
Tax Exemption Under 80C                        : Rs 1,50,000/- (Same as Earlier)
Tax Exemption Under 80D                        : Rs    25,000/- (Rs 15,000 Previously)
Conveyance Allowance Exemption           : Rs    19,200/- (Rs 9,600/- Previously)

So Your total Tax Benefits comes to Rs 4,44,200/-.

Alternative Way of Looking at it is:-

Interest on House Property Loan                : Rs 2,00,000/- (Same as Earlier)
Tax Exemption Under 80C                        : Rs  1,50,000/- (Same as Earlier)
Tax Exemption Under 80CCD                   : Rs    50,000/- (Newly Introduced)
Tax Exemption Under 80D                        : Rs    25,000/- (Rs 15,000 Previously)
Conveyance Allowance Exemption           : Rs    19,200/- (Rs9,600/- Previously)

Either way You look at it, You won’t have much to cheer about.

Overall Summary

As far as growth and attracting Investments is concerned the Budget seems to striving for it. Reduction is Corporate Tax and ease of investment will lure foreign funds. Focus on Infrastructure needs will also boost the growth.

The steps taken in respect of Labour Reforms also look promising. With more flexibility being offered as far as Statutory Benefits such as EPF and Pension Fund is concerned. The cafeteria approach will suit the youth more and they can decide on their benefits.

In my opinion the middle class segment of the country has been hit a bit hard by the budget. The tax exemption offered requires you to make an investment which again may prove taxing on them. Abolition of Wealth Tax although was a good move. The hike in Service Tax too will hit the large section of the society. Reference has been made to Inflation being under control in the budget but we have seen spike in the food inflation which does pinch the larger section of the society.

Income Tax Slabs and Rate for The Financial Year 2015-16

My Rating : 6.5/10

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