Union Budget 2016-Time To Start Planning

There were lot of expectations with Union Budget 2016-2017. There were expectations for increasing personal tax exemptions, increasing home loan exemptions and many others which matter most to the small tax payers. But few got fulfilled!!. But Spared!!

As far as personal taxation is concerned not much has been done. There were measures like increasing housing loan interest deduction limit for new borrowers availing loan up to Rs. 30 lakh which is beneficial and revision of housing rent deduction benefit for taxpayers not able to claim HRA. But there were taxes which saw enhancement too. Some of these rolled out directly to the investors while some will hit through other means.

Let’s see why Should You Get Home Credit Loans?

In fact a kind of rumors also went around for reintroducing LTCG tax in equities.

Retirement Benefits

Provisions

Although there has been host of benefits introduced for the small tax payers there are tax considerations which will have to be considered now–

• EPF & Superannuation Funds – The government has decided to contribute 8.33% share to the new EPF schemes for the next three years. But simultaneously accumulation from both EPF and Superannuation Funds has also been made partially taxable for contribution starting from next financial year which means going forward it may no longer enjoy EEE status. The hard part of this calculation will emerge going forward since the taxability is applicable only for contributions beyond 1^st April 2016. (Later clarified that only interest will be taxed and for salary above Rs 15000 p.m.). Also, the retirement age has been enhanced to 58 years from 55 years and there is a proposal to limit the employer contribution to Rs 1.5 lakh p.a.
• NPS – The taxation of NPS at vesting age was a major concern. This has been relaxed to some extent by increasing the tax exemption limit on withdrawal at retirement to 40% of the accumulated corpus.

Impact

Your retirement planning is going to be a very serious event now. With government stressing on bringing all pension schemes at par the dependability on one instrument for your golden years has to go. Post tax returns is what matters in any investments and that’s what you will have to take note now while matching your retirement need with the avenue you choose.So time you start planning now at the right note!!!

Affordable Housing

Provisions

• House Rent– The house rent deduction benefit for individuals who cannot avail HRA benefit was not reviewed for long. This has been done now wherein the tax benefits have been increased from Rs 2000 p.m. to Rs 5000 p.m.
• Housing Loan Interest– This budget again the government have given thrust on low-cost housing and have introduced additional tax exemption of Rs 50000 on housing loan interest. This will be applicable for houses below Rs 50 lakh value and for loan upto Rs 35 lakh.
• Housing Loan Condition (Sec 24) – The condition of 3 years for construction of house to claim interest exemption of Rs 2 lakh has been relaxed to 5 years.

Impact

Buyers looking for affordable housing will continue to claim higher benefits. Individuals will now be able to reduce their taxability by claiming this higher benefit even if house construction gets a bit delayed.

Taxes

 Major Provisions

It’s not that there are only tax benefits. Considering the government has to match the revenue losses with income and it need huge money for various benefits there are host of taxes introduced which will hit us to an extent:

• Dividend Income– Any income by way of Dividend will get taxed additionally at 10% of it exceed Rs 10 lakh. Confusion remains whether it’s from direct equities or include mutual funds.
• Surcharge -The surcharge on income above Rs.1.0 cr have been increased to 15% thus government retaining its position of taxing rich.
• Cesses– There are new categories of infra and agri cess which has been introduced in this budget. Krishi Kalyan Cess of .5%, Pollution cess of 1-2.5% on cars will be applicable from next financial year.
• STT– The STT on options have been increased from 0.17 to .05 %.
• Retirement – The taxability of EPF is the biggest change by far in the budget.

Impact

The service tax will go up to 15% in total which will make many items costlier for a common man. This may hit as going in restaurants, movies, beauty parlors etc.. will cost more now. Combined it with Retirement Planning surely the hit may be good enough to make you think.

Other Provisions – TDS Reduction

• Life Insurance- TDS on life insurance proceeds above Rs 1 lakh has been reduced to 1% from 2%. Also, the TDs rates on single premium annuity products have been reduced substantially which eventually makes earnings a bit higher from immediate annuity products.
• NSS – TDs get reduced to 10% from 20%
• Income from Commission or Brokerage – TDS gets reduced to 10% and minimum threshold decreased to Rs 15000 from Rs 20000.
• Luxury Cars- There will be TDS of 1% now on purchase of Luxury cars costing more than Rs 10 lakh.

Other than this the threshold limits of various financial instruments have been increased for TDS deduction which we will get clarity in due course.

Other Big Developments

There are other major developments which have been done in the budget and which may not have impact directly but surely gives a big boost to many other considerations. Here are the few of them :

• Real Estate Investment Trust gets a big boost wherein the dividend distribution tax has been proposed to get removed thus giving a probability of REITs coming soon.
• Sovereign gold bonds will not attract capital gains tax if sold by indivdiual investors an dthere will be indexation benefit to claim for LTCG. Also, under Gold Monetisation Scheme the interest issued on deposit certificates and capital gains shall be exempt form tax.
• Foreign entities can hold more share in Indian stock exchanges thus bringing fresh life into IPOs of BSE or NSE.
• General Insurance companies will get listed on stock exchanges.
• A thrust on deepening debt market and focus to increase participation of individual investors through various measures. Investors may see emergence of more bonds like tax free or infra and investors may see ease of investing in debt market thriugh stock exchanges.
• Clear focus on infrastructure and Agricultural sector where slew of measures were announced in the budget. Shops will open all 7 days,100% FDI on make in India products, Govt to increase ATMs, micro-ATMs in post offices in next three years, big infra spending, farmers to get connected to e-mandis and many others such measures were rolled out.
• Major recast of banking sector and steps towards consolidation of banks.
• Start-Ups getting major tax incentives.

Health Sector

The Health sector also gets a major focus in the budget. The new health scheme was announced for BPL families with senior citizens getting additional benefit, set up of National Dialysis Services, New generic drug stores for cheaper medicines will get opened across the country etc.

Social Sector

The social sector saw government focused on making Adhaar a Social Security Symbol. It has proposed to pass Adhaar Bill. MNREGA and Swatch Bharat Abhiyaan got additional funds and there is an initiative with states support to provide LPG connection to BPL families especially in the names of women.

Education

Entrepreneurship among SC/ST will get promoted and 10 private and public educational institutions will be made world class. More important- Digital India got special focus here wherein all school leaving certificates and diplomas will get digitized. Digital literacy will also be speared across 6 crore household.

Our View

If you read the budget there will be other measures which have been introduced. The focus is surely  on curtailing fiscal deficit and strengthening the economy by reducing government liabilities. On personal finance front this may be non-event budget. For individuals, it is a wake-up call to start planning as things may change fast. We have already seen a scenario of  guarantees on returns by the governemnt slowling being phased out. More will emerge as we move ahead. But considering even if some roll back happens governemnt is very clearly showing you the focus- Plan Your Finances. Overall it may be a good one for some while not so for some but we are satisfied with the balance this budget has brought within the constraint. But watch for many clarifications coming in next few days and final picture will emerge when finance bill is passed.

Image Courtesy:freedigitalphotos.net

htt