Budget 2021

Budget 2016: Gimme a tax break!

Anand Kalyanaraman BL Research Bureau | Updated on January 27, 2018


No hike in exemptions or deductions and ‘the rich must pay’

First, the good news. The Finance Minister has been kind to the small taxpayer, those who pay rent but don’t get an HRA, first-time buyers of modestly priced homes, and the poor who don’t have health insurance.

So, if your taxable income is up to ₹5 lakh, the tax rebate has been increased from ₹2,000 to ₹5,000 – that’s a saving of ₹3,090 including cess. Also, the deduction for rent paid by those who do not get HRA has been increased from ₹2,000 to ₹5,000 a month. This annual increase in tax deduction from ₹24,000 to ₹60,000 means a saving of about ₹3,700 to ₹11,120, depending on your tax slab. Finally, if you, as a first-time home buyer, are taking a loan of up to ₹35 lakh for a house that does not cost more than ₹50 lakh, you will get an additional interest deduction of ₹50,000. This could save you ₹5,150 to ₹15,450, based on your tax slab. A much needed health protection scheme for the poor has also been announced – this will provide a cover of up to ₹1 lakh a family, with senior citizens getting an additional top-up of up to ₹30,000.

The happy tidings end there. This is not a budget the middle class and the rich, especially the latter, are going to like. The FM had promised during last year’s budget that individual taxpayers will have a lot to look forward to when the Government’s fiscal capacity improves. Tight finances seem to have tied the FM’s hands. For the second year in a row, he has refrained from increasing the tax exemption limit or the deduction limit under Section 80C. There were no additional tax breaks on health insurance and medical reimbursement, or increase in tax-free allowances. The hope for a re-introduction of standard deduction on salary income remained just that.

The rich tax

On the contrary, the Finance Minister cracked the whip hard on the super-rich — not surprising given the unmistakable ‘the rich must pay’ vibe in the Economic Survey presented last week. So, if your taxable income is above ₹1 crore, the surcharge on the tax amount — brought in as a temporary measure when it was introduced at 10 per cent in the 2013 budget – has been raised from 12 per cent to 15 per cent. So, if your taxable income is ₹1.5 crore, you will have to shell out about ₹1.34 lakh more in taxes. Also, if you get dividend of more than ₹10 lakh a year, you will have to pay tax at 10 per cent of the gross dividend amount. The taxman also wants you to report your high-value transactions and shun big cash payments. So, if you fancy a luxury car costing more than ₹10 lakh, or make a cash payment exceeding ₹2 lakh for goods and services, you may have to deduct tax at 1 per cent when making the payment.

All pay more

Others too don’t get away lightly. The Krishi Kalyan Cess at 0.5 per cent on all taxable services means that all of us will pay more for eating out, watching that movie, recharging the phone and a host of other services. Give and take

Acceding to demands, the FM made the National Pension Scheme (NPS) more palatable. This he did by exempting from tax 40 per cent of the corpus amount at the time of retirement. So, the NPS has taken partial steps to move from an exempt-exempt-taxable (EET) model to an exempt-exempt-exempt (EEE) model — that is, the investment, income accrued and maturity all are exempt from tax.

But in what seems like an unkind cut, the FM has proposed the same norm for superannuation funds and recognised provident funds, including the Employee Provident Fund (EPF). So, from 100 per cent earlier, only 40 per cent of the corpus in the EPF created from contributions made from April 2016 will be tax-free. That means a reversal from the EEE model to the EET model, a move that found favour in the Economic Survey. Salary-earning subscribers may not like it as it can affect their retirement corpus.

Published on February 29, 2016

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