The nuisance of much-awaited maiden Modi-Union Budget -2014 has ultimately unveiled, though the finance minister has not stepped any major announcements, he however tried to give some respite to the individual taxpayers, investors and aam adami. He has made a slew of measures in personal finance, banking sector, education, power and other more areas. While taking a long-term vision and placing fiscal prudence on paramount importance, the finance minister has taken many incremental steps to revive the Indian economy on a sustainable basis. In this budget, every individual is eagerly wanted to know what would be come and gone in his pocket from the personal finance, investments and tax outgo view, which is mainly concerned with only tax proposals i.e. part b of FM’s budget speech. Let us first start with cheers of a slew of announcements which are favored in every individual tax payer.

Budget

Basic Exemption Limit

While no tinkering with the income tax rates for individuals, the much-awaited basic exemption limits for individual tax payers has been enhanced by Rs50,000 each for below 60 years of age and senior citizens who are of the age of 60 or more but less than the eighty years. It implies that first income tax slab has been raised from Rs2 lakh to Rs2.50 lakh and for senior citizens from Rs 2.5 lakh from Rs 3 lakh while other income tax slabs remain untouched. It translates every individual tax payer would have definitely come in his pocket at least of Rs5150 per annum, if s/he is in hover under the 10% bracket. The only dampener here is that there is no change in the first income tax slab for individuals who are of the age of eighty years or more i.e. very senior citizen people, their basic exemption limit would remain the same as earlier of Rs 5 lakh. The budget has also nothing special for women taxpayers in their kitty. The surcharge and education cess however, keep continue at 10.0% and 3.0% respectively.

Investment deduction limit under Section 80C

In 2005, the renowned taxes saving investment under section 80C was enhanced to Rs1 lakh, which has remained untouched after almost a decade. While raising the investment limit under section 80C of the Income Tax –Act from Rs1 lakh to Rs1.50 lakh , the finance minister has given dual benefits to all individual tax payers by augment their domestic savings across in all mutual Fund ELSS schemes, insurance policies, PPF, NSC, 5 year tax fixed deposits etc. and get an opportunity to save another a paltry sum of tax at least Rs5150. Though investment deduction limit has not moved up in line with real inflation, FM’s announcement on taxation has brought some sort of relief to the individual tax payers as it will increase the purchasing power of individuals and stimulate demand.

Limit of Public Provident Fund

The Finance minister has also proposed the increase in the annual investment ceiling limit of Public Provident Fund (PPF) scheme to Rs1 lakh to Rs1.50 lakh at present. This is a very welcome step for risk-averse investors who do not tend to go in equity world. They now could create respectable tax-free corpus around Rs44 lakh by investing Rs1.50 lakh in every year while assuming rate of interest 8% p.a. for the 15 years to save tax as well. This sum may suffice for their child’s education and marriage. Likewise Kissan Vikas Patra (KVP) which was a very popular instrument among small savers had been discontinued in the past budget, FM also proposed to be re-introduced the same to encourage people who may have banked and unbanked savings to invest. It is also proposed to provide additional benefits to small savers by launching a National Savings Certificate (NSC) along with an insurance cover and also have special small savings instrument to cater to the requirements of education and marriage of the girl child.

The Cap on interest on home loan

Owing to high cost of financing, an elevated interest rate scenario and rise in property prices, the finance minister has given some relief to housing loan borrowers by increasing the cap on interest on home loan from Rs1.50 lakh to Rs2 lakh under section 24(b) of the Income Tax Act, 1961 in respect of Self Occupied Property (SOP), as measure to reduce the burden of such tax payers. This move would also encourage and bring opportunity to individuals who intend to take housing loans to buy their dream house.

Long-term Capital Gain Tax

In this case, the finance minister has taken cruel step towards all mutual funds schemes other than equity oriented funds such as debt, gold, fixed maturity plans, zero coupon bonds, international funds etc. by increasing the rate of tax on Long Term Capital Gain tax (LTCG) from 10.0% to 20.0% on transfer of units of such funds while enhancing the period of holding in respect of such funds to be categorized as LTCG from earlier 12 months to 36 months. Such double-edge sword will impact adversely on retail debt mutual fund investors who have been taking the benefit of the tax arbitrage. The purpose of this proposal may bring parity with bank fixed deposits and other debt instruments. In the absence of a tax arbitrage, this proposal may curtail short term parking in debt mutual funds by investors and may therefore pose a challenge for debt mutual fund industry.

Uniformity in KYC

The Finance minster has taken another appreciable step to introduction of uniform Know Your Customer (KYC) norms and inter-usability of KYC records across the entire financial sector. This move would ease one for the individual investor who deals with multiple service providers such as banks, insurance companies and mutual funds and even demat accounts. Another key proposal that the budget has expressed the concept of one single operating demat account where all your financial securities such as buying stocks, insurance and commodities would be held. This may make life more convenient for many investors.

TDS on Life Insurance Policies

Another proposal of budget has axed to matured insurance policies proceeds by tax deducted at source (TDS) at the rate of 2 percent on sum paid under a life insurance policy, including the sum allocated by way of bonus, if your sum assured is less than 10 times the annual premium, the death benefit however, in this case will continue to be tax free. But here is some respite that no deduction will be made on the aggregate sum in a financial year to an assessee is less than Rs 1 lakh.

Advance for transfer of a capital asset

According to existing provisions of any sum of money received as an advance in the course of negotiation for transfer of a capital asset, if such money is forfeited and the negotiations do not result in transfer of capital asset that sum is taxed under the head ‘Income from other sources’. And such amount is also reduced from the cost of acquisition of the asset while determining capital gains. This resulted to invite double taxation treaty of the advance received and retained. To avoid this anomaly, finance minister has proposed that such amount shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.

Presumptive Income of Plying, Hiring or Lease Good Carriage

Considering the erosion in the real values of the amount of specified presumptive income due to inflation over the years and also in order to simplify this presumptive taxation scheme, it has also proposed for upward revision of presumptive income from Rs.5000 per month for heavy goods vehicle (HGV) and Rs.4500 per month for vehicle other than HGV by a uniform adoption of Rs.7,500 every month for or all types of goods carriage without any distinction between HGV and vehicle other than HGV. It is a marginal relief those vehicles used in the business of plying, hiring or leasing of such goods carriages. 

Capital gain exemption in case of investment in residential house property

Under the existing provision, long-term capital gain arising from transfer of a capital asset is exempt under Section 54/54F if invested in purchase of a house property, subject to certain conditions. The benefit was intended for investment in one residential house within India. Accordingly, it has now been clarified as to provide that the rollover relief under the said section would now available if the investment is made in one residential house situated in India.

Conclusion

It may be concluded that the Modi-led Union Budget 2014-15 has left plat to give some another tax-savings sops for an aam aadmi. However, new amendments pronounced in the Budget will improve common man’s net pay to certain extent; one should always keep a tab on the latest happenings to ensure compliance and proper financial planning. We do hope that new government will keep economy in pace with new changes and revamp the tax structure while controlling inflation, fiscal deficit and accelerate economic growth and indeed achche din ayaenge.

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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