The Tribune, Chandigarh, India

personal finance
Budget and its impact on personal finance
With the hike in minimum tax exemption limit to Rs 2.5 lakh, every taxpayer, irrespective of his tax bracket, will have a saving of Rs 5,150 per annum
Anil Chopra

THE maiden Budget from the newly formed BJP Government was presented by Finance Minister Arun Jaitley on July 10. It was a mixed bag of both relief and some unwelcome announcements.

As was widely expected by experts, the minimum basic tax exemption limit has been raised from Rs 2 lakh to Rs 2.5 lakh. This means that every taxpayer in the country, irrespective of tax of his/her bracket, will have a potential tax saving of Rs 5,150 per annum or Rs 430 per month. This is a welcome relief to partly neutralise the impact of consistent high inflation.

Also, deduction limit u/s 80C has been increased from Rs 1 lakh per individual per annum to Rs 1.5 lakh. This proposal gives additional opportunity to all taxpayers to reduce their annual tax liability significantly.

Maximum potential relief for a taxpayer in the 30% tax bracket works out to Rs 15,450 and the same figure is Rs 10,300 for those who are in the 20% tax bracket, and Rs 5,150 for taxpayers in the 10% tax bracket. This is a clever move to divert household savings from physical assets such as real estate and gold to financial assets such as mutual funds, insurance and bank FDs. Taxpayers should now allocate this complete limit of Rs 1.5 lakh into 3 buckets, namely provident funds (including PPF), mutual fund schemes (ELSS) and ULIPs/term plans of life insurance companies in equal proportion, i.e. 1/3rd each.

However, senior citizens in the high tax bracket may like to consume this enhanced 80C limit by putting the entire amount of Rs 1.5 lakh in their PPF accounts. This brings us to another welcome proposal in this Budget, which is increasing the limit of fresh deposit amount in PPF accounts from Rs 1 lakh per annum to Rs 1.5 lakh now.

There is good news for home loan seekers also as the interest on loan amount allowed to be deducted from total income has been increased from Rs 1.5 lakh to Rs 2 lakh now. For a taxpayer in 30% tax bracket, total saving in tax due to this positive announcement will now be enhanced to Rs 60,000 per annum i.e. Rs 5,000 per month which is substantial and encouraging for younger generation with high incomes who have dreams of owning a home of their own.

Some more good news comes in the form of Section 87A, which was introduced last year will continue to give relief of up to Rs 2,000 to marginal taxpayers above the newly set limit of Rs 2.5 lakh.

Essentially, there is nil tax liability for annual incomes up to Rs 2.70 lakh. Similarly, contrary to expectations, RGESS Schemes (Rajiv Gandhi Equity Saving Schemes) has not been sunset and still continue as an additional tool for saving tax for first time investors in equity markets.

The bad news is that deduction limit under Section 80D has not been enhanced.

There were huge expectations that in order to encourage citizens to go for higher health insurance covers, the limit under Section 80D will be increased from the current level of Rs 15,000.

Another proposal which is not being liked by many high net worth individuals and corporates is changing the definition of long term for the purpose of taxation of short-term debt funds and FMPs (Fixed Maturity Plans). Earlier, if an investment was held for more than a year, it was treated as long term and was entitled to concessional taxation. This definition has now been changed to 3 years, which makes investments in these avenues unattractive when compared to bank deposits. This amendment has been done to create a level-playing field for banks and mutual funds. Also, because this provision is effective back April 1, 2014, many investors will have to now cough up higher tax than they had planned.

On the whole, this is a balanced Budget and now we look forward to a road map that will help in implementing big time reforms by introducing DTC (Direct Tax Code).

The author is Group CEO & Director, Bajaj Capital. The views expressed in this article are his own

Filing I-T return: Include all your ‘other’ incomes
Balwant Jain

THE income tax return filing season is on us. All of us are busy compiling the details necessary for filing of income tax returns. Salaried employees are generally under the impression that they are not required to file returns of income as the tax has already been deducted from their income.

Some of the salaried employees who file their income tax return only show the income as per the form no. 16 issued by the employer. But there are various other incomes which a taxpayer, whether salaried or self-employed, earns but normally does not include in his/her return. In this article, I intend to discuss the items of income, which are taxable, but are generally not included in our return of income.

Capital gains on units of mutual funds switched

For those of you, who invest in mutual funds schemes, do shift their investments from one scheme to another scheme of the same fund house for various reasons like poor performance/shift to direct plan of the same scheme. Since all these transactions of switching of your investments from one account to another account are not routed through your bank account, the person filing your return may not become aware of this even the fact of shifting would have slipped your memory too.

The switch affected by you may be in respect of units held for less than a year or for more than a year. Gains made on short-term units and long-term units entail different tax treatment. Even the tax treatment is different between debt schemes and equity-oriented schemes of mutual funds. So go through your mutual funds statements and in case any switch has happened during the period, please include the same in your income depending on its taxability.

Interest on bank's savings account and fixed deposits

Average taxpayer is under the impression that interest on savings account is fully exempt and since tax has already been deducted on our fixed deposits, we need not include the same in our income. This is not the case. At present, interest on savings bank account is exempt only up to Rs 10,000 in a year and any amount beyond this amount is taxable and needs to be included in your income.

Even in cases where tax is deducted on interest on bank deposits such as FDs, you are supposed to include the income in your income and claim credit for TDS. The interest is taxable at the applicable slab rate and it may not be the same as the rate on which the bank has deducted TDS. Even in cases where you have not received the interest on fixed deposit but the fixed deposit has been renewed, you are supposed to include the interest for the year in current year's income. If you are following cash basis of accounting, the full interest on renewed FD is taxable in the current year as the interest on such renewed fixed deposit is deemed to have been received in the year of renewal. In case of mercantile system of accounting, it becomes taxable on year- on-year basis and needs to be included in your income accordingly.

Income earned on investment of minor child

Income of a minor child is clubbed in the income of the parent whose income is higher. Sometimes money received as gift by the child is invested by parent in bank fixed deposits in the name of the child.

The interest on such FD or any other investment in the name of the minor is to be included in parent's income. However, an amount up to Rs 1,500 is exempt in respect of each year for every child.

Notional income in respect of more than one house property

You may have more than one residential house and none is let out. The present tax laws allow you to have only one house as self-occupied and the other house/s are treated as deemed to have been let out. In respect of the property which is deemed to have been let out, you need to offer the notional rent expected to be realised in respect of such property for taxation though you have not actually received any rent as the same is used by you or your relatives for own use. In case of such "deemed to have been let out property" you can claim full interest in case the property is bought with borrowed money.

Gifts or other benefits received

Many businessmen receive various gifts whether in the tangible form or intangible form from their business associates in the course of business. Though the non-tangible gifts are not reflected in the books of accounts but these are taxable as business income. Such gift would include items like paid holidays or gifts of various valuable items like gold or silver coins or mementos. Please disclose the fact of you having received such gift to your chartered accountant so as to ensure compliance with the law fully.

So please take care that the items of income mentioned above are included while filing IT returns. If these are not included due to oversight or ignorance of the legal provision, you may be inviting trouble.

The author is CFO, Apnapaisa. The views expressed in this article are his own

tax advice
File form 15G to avoid TDS
SC Vasudeva

The income details of Mr 'A'are as under:

Salary: Rs 1, 00,000 per annum

Bank interest: Rs 1,99,000 pa

Total: Rs 2,99,000 pa

He deposits Rs 1,00,000 in PPF account in April, thus being sure that income for the year shall surely be not taxable.

Can Mr 'A' furnish form 15G to the bank to avoid TDS? — BK Bindal

The amount of bank interest in your case being less than the maximum amount (i.e. Rs 2,00,000) which is not chargeable to income tax, you can file form 15G in accordance with the provisions of Section 197A read with sub-section (1A) and (1B) of the said section.

My two FDs got matured on 17.6.2013. An FD for Rs 26,436.09 had the maturity value of Rs 30,602.88 whereas the maturity value of FD for Rs 85,625.94 was Rs 99,122.10. I asked the bank official to prepare only one FD of the total amount. The official concerned credited Rs 30,431.10 deducting Rs 171 from my first FD and Rs 98,563.71, after deducting Rs 556 from the maturity value of the second FD, in my savings account on 17.6.13. So I was issued a single FD for Rs 1,28,994 the same day. Thus, Rs 730 were deducted as tax. The Bank of India has not mentioned Rs 730 as TDS while issuing form 16-A. When approached, I was told that TDS was deducted in 2012-13 and not in financial year 2013-14. But the Form 16-A issued by the bank in question in 2012-13 also mentions TDS as nil. Please advise what should I do. — BR Preenja

The FDs having matured on 17th June 2013 and combined receipt having been received on that date for Rs 1,28,994, tax on interest is deemed to have been deducted for financial year 2013-14. Accordingly, the bank is obliged to issue a TDS certificate for the amount of tax deducted at source during financial year 2013-14 which should be adjustable against tax payable for the said financial year corresponding to Assessment Year 2014-15. In case bank does not issue you a certificate, you can approach the income-tax officer who has power to levy penalty on the bank under Section 272A(b) for failure to furnish tax deduction certificate. Penalty is leviable @Rs 100 for every day during which the failure continues.

This is with reference to your reply published in The Tribune dt 10.3.2014, informing my tax liability of Rs 5,150 for the FY 2013-14 on a total income of Rs 3 lakh. Please clarify whether a further rebate of Rs 2,000 is permissible to me as my income is below Rs 5 lakh. — PDS Sharma

You will be entitled to claim rebate of income tax u/s 87A of the Income-tax Act, 1961 (The Act) to the extent of Rs 2,000 as your total income of Rs 4,00,000 (salary Rs 3,20,000 and interest Rs 80,000) is below Rs 5,00,000 before allowing deductions under Chapter VI-A of the Act.