Budget 2016 and your Personal finances

Was this budget 2016 a Nonevent? Well Yes, for those who were seeking some immediate tax benefits as always. But I think the time has come when we should move up from seeking tax benefits, and should rather seek out the ways to keep check on our government, that if taxes collected from us are being used up in productive way or not.

We should feel responsible towards our money, and like our personal finances we should also take note of what government is doing with our money. Is our country really progressing?

This is what I felt in this budget 2016. Taxes are being levied on the “Comparatively RICH” people, on their high end purchases be it cars, jewellery etc., and the resources are being used towards the upliftment of rural India, providing health insurance to the poor, Electrifying the villages, supporting the new entrepreneurs so employment can be generated etc.

Government shied away from recapitalizing banks much; even corporate tax was reduced only for the small segments…are some other things which I liked, in budget proposals.

One of the best statements which I liked in this budget speech was, “ A broad understanding over the years has been that Plan expenditures are good and Non-Plan expenditures are bad. This results in skewed allocations in the Budget. We need to correct this and give greater focus to Revenue and Capital classification of Government expenditure.”

Government has realized the importance of Planning 🙂

Now, coming to our Personal Finances. There were few announcements in this area too. What can clearly be sensed through the proposals that government wants to promote Pension scheme and also discourage investors going for a fixed interest products, which put more burden on government finances. Below are some of the announced provisions and amendments:

1. Section 87A – Tax rebate u/s 87A has been raised from Rs 2000 to Rs 5000. This is applicable to the individuals with income not exceeding Rs 5 lakh.
2. Section 80GG – People who live on Rent and don’t even get HRA from employer, can claim upto Rs 60000 u/s 80GG. Earlier this limit used to be Rs 24000 p.a.
3. Section 80CCD – Upto 40% of withdrawal from NPS at the time of Retirement would be completely tax free. ( Read: NPS Withdrawal rules)

In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after 1.4.2016.

Earlier NPS withdrawals were 100% taxable and EPF withdrawals were tax completely free after 5 years.

4. Service tax on Single Premium Policies has been reduced from 3.5% to 1.4%
5. Section 80EE – Additional deduction of Rs 50000 as interest paid on loan, has been proposed for the first time home buyers, with the following conditions:

a)      The loan has to be sanctioned by financial institution between 1 April 2016- 31 Mar 2017

b)      The amount of loan should not exceed Rupees thirty five lakh.

c)       Value of residential house purchased should not exceed Rupees 50 lakh.

d)      Assesse should not own any residential house property at the date of sanction of loan.

Now those who take housing loan and satisfies the above mentioned conditions can claim Rs 2.50 lakh of Interest benefit

6. Section 115BBDA – If you receive Rs 10 lakh or more of dividends from equity shares in a financial year, then you have to pay 10% tax on the dividend amount. This is over and above DDT (Dividend Distribution Tax) that gets paid at Corporate level.
7. Surcharge has been raised on Income above Rs 1 crore from 12% to 15%
8. FM proposed to collect tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs.ten lakh and purchase of goods and services in cash exceeding Rs.two lakh.
9. It is proposed, that redemption by an individual of Sovereign Gold Bond issued by Reserve Bank of India under Sovereign Gold Bond Scheme, 2015 shall not be charged to capital gains tax. It is also proposed to provide that long terms capital gains arising to any person on transfer of Sovereign Gold Bond shall be eligible for indexation benefits.
10. 0.5% of Krishi Kalyan Service cess will increase the service tax rate to 15%.
11. It is proposed to provide that deduction of interest payable on capital borrowed for acquisition or construction of a self-occupied house property shall be allowed if such acquisition or construction is completed within five years.
12. TDS on taxable life insurance policies, has been reduced from 2% to 1%

Well these are the few ones which i felt important to know from personal finance angle. Many are still at discussion stage, and needs to be seen if approved by Parliament…especially the one which has taxed the EPF withdrawals. If accepted then the detailed impact on your own finances needs to be seen. So for now, just be aware of these provisions.

If you find something specific and important in the budget proposals, beneficial to all. Please do Share in the comments section