The Budget has some positive proposals on personal taxation which will help individuals generate additional savings. It also opens up some new avenues for you to invest.

All are equal

Apart from increasing the lower tax slabs, the Budget has standardised the tax slabs for men and women. Those having an income of Rs 10 lakh would have a maximum tax saving of Rs 22,660 a year from the proposal.

The basic tax exemption for men and women has been brought at par.

Senior (60 - 79 years) and very senior citizens (80 years plus) would continue to enjoy the higher exemption threshold. Refer table for tax savings at various levels.

Interest saved

Interest income from savings account would not be taxable up to Rs 10,000 a year. This brings back the erstwhile tax regime of exempting interest income, not unlike the old section 80L of the Income Tax Act.

But the sum would have been higher if adjusted for inflation. The new proposal can result in a modest saving of Rs 3, 090 a year at the maximum. Note that interest on time deposits (fixed deposits) would not qualify for this benefit.

Further, interest income from debentures of listed companies will now attract withholding tax only if it exceeds Rs 5, 000, against the old threshold of Rs 2,500.

Preventive healthcare is an integral part of modern day lifestyle. It would be easier now to follow the norm ‘prevention is better than cure'.

Incurring expenses on medical check-ups for family and parents up to Rs 5, 000 a year will now be exempt. But this comes within the existing tax benefit for health insurance premium. This could be especially useful for the younger generation who may not be utilising the entire medi-claim insurance cover and those having group medical coverage from their employer.

Although the threshold of tax exemption has not been increased for senior citizens, special care has been taken to improve their cash flow.

Senior citizens would not henceforth be required to pay advance tax provided they do not have income from business or profession.

Where to invest

Analysis of budget proposals indicates that on one hand it provides you with extra liquidity and on the other hand it encourages investment for lower income group and in small/medium enterprises.

New to equity?

The proposed ‘Rajiv Gandhi Equity Savings Scheme' encourages small and retail investors (income less than Rs 10 lakh) to invest in equity.

It provides an upfront tax incentive to mitigate the rigour of the 3-year lock in period for the investment. One would have to wait for the details of the scheme to be announced.

Cheaper to trade

A 20 per cent reduction (from 0.125 to 0.1 per cent) in Securities Transaction Tax would benefit those trying their luck in the stock market.

The proposal to allow the government undertakings to issue tax free bonds would enable investors to earn higher return on their bond investments. Entities such as NHAI and IRFC have already issued such bonds and more may follow suit.

Sell land, buy business assets

The Finance Minister has also provided an impetus to Indian entrepreneurial skills. Investment of sale proceeds of a residential property/plot of land, in an SME company (for further investment in plant and machinery) would now render the capital gains made, tax exempt.

This is likely lead to conversion of non-productive investments into more productive business ventures. Those with more than one residential house property may consider this route for gainful re-deployment of their capital.

The direct tax benefits proposed in the Budget, though not substantial are meaningful.

One may say that the Finance Minister has tried to lessen the impact of the higher indirect tax burden through beneficial measures on the personal tax front.

(The author is Executive Director Tax & Regulatory Services, PwC India. He was assisted by Ravi Jain, Senior Manager.)

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