Tax relief of Rs. 2,000 tax credit has been given to individuals with income between Rs. 2 lakh to Rs. 5 lakh
“Only 42,800 persons in the whole country who admitted to a taxable income of exceeding Rs. 1 crore per year. I propose to impose a surcharge of 10% on persons whose taxable income exceeds Rs. 1 crore per year,” Finance Minister P Chidambaram said while unveiling Budget proposals for 2013-14 in Parliament on Thursday. While the 1 hour and 45 minute speech highlighting the expenditures and revenues was a massive task, we cut through the business jargon to help you understand in simple terms what the Budget has for you.
Income slabs remain same
Income tax slabs have been left untouched this year in view of the objective of widening tax base and increasing tax compliance. The income tax slabs remain the same as FY12-13. The same tax slab rates for taxpayers this year, implies zero savings as far as the basic payment of income tax is concerned.
Income tax slabs for FY14 same as FY13
- No tax for men for income up to Rs. 2 lakh
- No tax for women for income up to Rs. 2 lakh
- No tax for senior citizens (aged 60 to 80 years) for income up to Rs. 2.5 lakh
- No tax for very senior citizens (aged 80 and above) for income up to Rs. 5 lakh
The prices of commodities have been rising constantly but there has been no rise in the income tax slab. Real tax payers are the salaried class and the middle class people. An increase in the tax slab would have at least mitigated their hardships and benefitted them.
However, tax relief of Rs. 2,000 tax credit has been given to individuals with income between Rs. 2 lakh to Rs. 5 lakh. About 1.8 crore tax payers are expected to benefit to the value of Rs. 3,600 crore because of this announcement. However, the amount of Rs. 2,000 tax credit is almost negligible considering the high inflation.
On the other hand, a surcharge of 10% has been imposed on the super-rich with annual incomes of Rs. 1 crore or more per annum. The surcharge will cover individuals, HUFs, firms and all entities with similar tax status and would be valid for FY13-14 only. Surcharge of 10% on super-rich is not going to affect large numbers as only 42,800 persons in the whole country admitted to a taxable income of exceeding Rs. 1 crore per year. However, it will add substantial amount to the government revenues.
Education Cess & Tax free bonds
Education cess for all tax payers would continue at 3%. But tax-free infrastructure bonds of Rs. 50,000 crore would be allowed to be disbursed in 2013-14.
Tax-free bonds are secured, redeemable, non-convertible debentures issued by government entities to individuals and institutional investors to mobilize funds needed for projects in the infrastructure development sector. The Budget announced the intention to introduce inflation-indexed bonds or certificates. The details of these financial instruments will be announced later.
Home loan… additional deduction
First-time home loan buyers have been given an additional deduction of interest of Rs. 1 lakh for loan for amounts not exceeding Rs. 25 lakh. This deduction would be over and above Rs. 1.5 lakh allowed for self-occupied properties, thus taking the total amount to Rs. 2.5 lakh. However, the deduction is subject to two conditions. First, an individual has to take the loan for his first home up to Rs. 25 lakh and the value of the property should not exceed Rs. 40 lakh. Second, the additional deduction of interest of Rs.1 lakh is only for the period 1 April 2013 to 31 March 2014. Introduction of additional relief on housing loan interest will attract small tax payers.
There would be 1% tax deduction at source (TDS) on transfer of immovable property worth over Rs. 50 lakh. However, agricultural land will be exempt.
RGESS to be liberalized
To increase retail participation in the capital markets, the Budget 2013-14 has liberalised tax provisions in the Rajiv Gandhi Equity Saving Schemes (RGESS). First time investors can invest their money in specified mutual fund (MF) schemes and listed shares of companies and enjoy tax deductions for three successive years.
The income limit for RGESS is raised from Rs.10 lakh to Rs.12 lakh. It will certainly attract more investors in equity market/mutual funds. Earlier, investors with income less than Rs. 10 lakh could avail of a tax break up to 50% of the amount invested in equity. As per earlier provisions, investments in subsequent years were not counted for the tax benefits.
The Union Budget 2013-14 has cut the STT (securities transaction tax) on equities and mutual fund units. The STT charge on equity futures is cut from 0.17% to 0.1%. In the previous Budget, STT was slashed by 0.17% from 0.125% on cash delivery transactions.
The STT charge on redemption of mutual funds or ETFs (exchange traded funds) at fund counters is reduced from 0.25% to 0.001%, while STT on sale of MFs or ETFs on stock exchanges is cut from 0.1% to 0.001% levied only on the seller. However, the reduction in STT rates is marginal. Also, the reduction in STT rate would be more beneficial for traders and not for long-term investors.
0.01% CTT on non-agro commodity trades
Commodities transaction tax (CTT) shall be levied on non-agricultural commodities future contracts at the same rate as on equity futures that is at 0.01% of the price of the trade. The trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transaction forms part of business income. CTT is introduced in a limited way and agricultural commodities will be exempt. However, one should note that not many lay investors invest in non-agricultural commodities future contracts. So the introduction of CTT is hardly beneficial for small investors.
Requiring KYC (know your customer) similar to that of banks for insurance policies will make compliance simpler and enable better risk management and fraud control.
Schemes of the central government and state governments similar to Central Government Health Scheme (CGHS) have also been made eligible for deduction under Section 80D of the Income-tax Act.
Disabled people to get relaxation in insurance premium rates
Eligibility conditions of life insurance policies for persons suffering from disability or certain ailments have been relaxed by increasing the permissible premium rate from 10% to 15% of the sum assured. This relaxation shall be available in respect of policies issued on or after 1 April 2013. Thus, for these assesses, if the annual premium paid is up to 15% of the sum assured, the same can be availed as a deduction under the Rs. 1 lakh tax limit under Section 80C.
Donations made to the National Children’s Fund have been fully exempted. RSBY (Rashtriya Swasthya Bima Yojana) to extend coverage to rickshaw, taxi driver, rag pickers and mine workers. RSBY is a government-run health insurance scheme for the Indian poor.
All the Sections remain untouched
One can say that it was not an “investor-oriented” budget. The Budget has not taken care of the ‘aam admi’, who is already burdened by price rise and high inflation. The Budget has disappointed employees of various public sector units as well as private sector who are the largest direct tax payers in the country as they expected the Section 80C limit would have been increased to Rs. 2 lakh. However, the Section 80C remained unchanged.
Currently, an individual gets the deduction u/s 80C of the I-T Act, 1961 which is limited to Rs. 1 lakh per annum for different investments during a year (like contribution towards employee provident fund, Public Provident Fund, payment of life insurance premium, tuition fees, etc.) This limit for investments is quite low in today’s environment keeping in view of increasing inflation. Therefore, it was expected that the exemption limit under Section 80C would have been increased to Rs. 2 lakh per annum.
Section 80D remains the same
At present, the limit for medical reimbursement which is not taxed under Section 80D is Rs. 15,000 per annum. This limit for reimbursement of medical expenditure was last revised almost 14 years ago and in light of the soaring medical and hospitalisation costs especially for private hospitals, needed to be revisited. Hence, the current limit of Rs. 15,000 per annum should have been increased. However, this year’s Budget has left the Section 80D unchanged.
The Budget significantly enhanced the outlays for areas such as women development, health, scheduled caste welfare, farm credit, malnutrition, rural job scheme, water and urban development. However, this hardly serves to the plight of common man. Despite large allocations for the SCs/STs, women, health, etc in every Budget, the money has not helped improve the plight of people from lower castes.