Since the expectations from much awaited Modi-led-NDA Union Budget 2015-16 were sky high, people got mildly disappointing with much expected a change in tax slabs because everyone was expecting another round of rationalization of tax slabs in this budget and would get relief from huge tax burden. But this year budget, FM has shown us only a roadmap for the next four years and thrust to augment more savings while expanding the scope of deductions under section 80s. However, FM has tried to leave something for all but did little in scope of exemptions. So let’s go insight into the budget how provisions of income tax have been changed for individuals.

No change in Income Tax Exemptions

Although, the income tax base exemption limit has already been increased from Rs 2 lakh to Rs 2.50 lakh in the maiden budget of NDA government presented in July 2014, such expectation had again ensued that the base exemption would be increased by another Rs 50,000. But amid the revenue deficit and fiscal consolidation, the government did not honour this expectation while no tinkering with tax slabs. Hence, the basic income tax exemptions have remained the same and again hopes are showering till the next year budget. However, FM has taken welcome step to abolish of levy of wealth tax under Wealth-tax Act, 1957, it is proposed that the objective of taxing high net worth persons shall be achieved by levying an 2% additional surcharge on tax payer earning exceeding one crore rupees which has been increased from the existing surcharge at the rate of 10% percent of such tax to 12%.

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Raising Transport Allowance Exemption

On the backdrop of rising cost of commuting over the years, transport allowance for individual salaried employees has been doubled to Rs 1,600 per month from the existing Rs 800 per month. The total yearly benefit will amount to Rs 19,200 as against to Rs 9,600 at present. Though the hike in the limit is especially disappointing considering that the present exemption limit was arrived at more than a decade ago, it is just healing touch in not increasing the tax slabs.

Deductions and under Section 80C and 80CCC

While clarifying on investment in Sukanya Samriddhi Account Scheme under Section 80C which was earlier announced to promote welfare of girl child, it is proposed that the interest accruing on deposits in and withdrawals from this account will be tax exempt. In order to promote social security, it is also proposed to raise the limit of deduction for an amount paid or deposited for a contract for any annuity plan of LIC or any other insurer for receiving pension from a fund set up under a pension scheme, under section 80CCC from Rs. 1 lakh to Rs. 1.50 lakh. However, the overall limit of deductions under Section 80C, 80CCD and 80CCC cannot exceed Rs. 1.50 lakhs as per existing provisions of Section 80CCE.

Additional deduction under Section 80CCD

With a view to encourage people to contribute towards New Pension Scheme (NPS), it is proposed that in addition to the limit of deduction under section 80CCD(1), an additional deduction in respect of any amount paid, of up to Rs. 50,000 for contributions made by any individual assessees under the NPS. This will enable India to become a pensioned society instead of a pension less society.

Amendment in section 80D relating to deduction in respect of health insurance premia

In view of continuous rise in the cost of medical expenditure, it is proposed to increase the limit of deduction under section 80D from Rs. 15,000 to Rs. 25,000 in respect of health insurance premia, paid by any mode, other than cash, to effect or to keep in force an insurance on the health of the assessee or his family or any contribution made to the Central Government Health Scheme or any other notified scheme or any payment made on account of preventive health check up of the assessee or his family and an additional deduction of Rs 15,000 is provided to an individual assessee to effect or to keep in force insurance on the health of the parent or parents of the assessee. It is further proposed to raise the limit of deduction for senior citizens from twenty thousand rupees to thirty thousand rupees.

Further, very senior citizens who is of the age of eighty years or more at any time during the relevant previous year are often unable to get health insurance coverage and are therefore unable to take tax benefit under section 80D. Accordingly, as a welfare measure towards very senior citizens, it is also proposed to provide that any payment made on account of medical expenditure in respect of a very senior citizen, if no payment has been made to keep in force an insurance on the health of such person, as does not exceed thirty thousand rupees shall be allowed as deduction under section 80D. The aggregate deduction available to any individual in respect of health insurance premia and the medical expenditure incurred would however be limited to thirty thousand rupees. Similarly aggregate deduction for health insurance premia and medical expenditure incurred in respect of parents would be limited to thirty thousand rupees.

Let’s take an example as if any individual and his family pays health insurance premium worth Rs 21,000 and also covering with health insurance of his/her mother by paying additional premium of Rs 18,000 and also incurred the medical expenditure worth Rs 15,000 on his/her father who is very senior citizen would now be eligible deduction of Rs 51,000 Rs (21,000 + Rs 30,000) under section 80D.

Raising and easing the limit of deduction under section 80DDB

The above deduction is available to an individual for medical expenditure incurred on himself or a dependent relative such as the spouse, children, parents, brother or sister of an individual. To avail this deductions a certificate in the prescribed form, from a neurologist, an oncologist, an urologist, a hematologists, an immunologist or such other specialist working in a Government hospital is required which causes undue hardship to the persons intending to claim the aforesaid deduction. And, government hospitals at many places do not have doctors specializing in the above branches of medicine. For this and other reasons, it may be difficult for the taxpayer to obtain a certificate from a Government hospital.

In view of the above, it is proposed to amend section 80DDB so as to provide that the assessee will be required to obtain a prescription from a specialist doctor for the purpose of availing this deduction. Further, it is also proposed to amend section 80DDB to provide for a higher limit of deduction of up to eighty thousand rupees, for the expenditure incurred in respect of the medical treatment of a “very senior citizen”.

Raising the limit of deduction under section 80DD and 80U for persons with disability and severe disability

In view of the rising cost of medical care and special needs of a disabled person, it is proposed to amend section 80DD and section 80U so as to raise the limit of deduction in respect of a person with disability from Rs. 50,000 to Rs. 75,000. It is further proposed to raise the limit of deduction in respect of a person with severe disability from Rs. 1 lakh to Rs. 1.25 lakhs.

Increase the scope of 100% deduction under section 80G

With a view to encourage and enhance people’s participation in the national effort to improve sanitation facilities and rejuvenation of river Ganga, it is proposed to amend section 80G of the Act so as to incentivize donations to the two funds. It is proposed to provide that donations made by any donor to the Swachh Bharat Kosh and donations made by domestic donors to Clean Ganga Fund will be eligible for a deduction of hundred per cent from the total income. Since National Fund for Control of Drug Abuse is also a Fund of national importance, it is proposed amend section 80G so as to provide hundred percent. Deduction in respect of donations made to the said National Fund for Control of Drug Abuse.

Rationalization of provisions relating to deduction of tax on interest

Section 194A provides the TDS deduction at the rate of 10% on fixed deposit interest over a specified threshold i.e Rs 10,000 for interest payment by commercial banks and nationalized banks. As there is no difference in the functioning of the co-operative banks and other commercial banks, it is now proposed that co-operative banks are also required to deduct tax from interest payment on time deposits if the amount of such payment exceeds specified threshold of Rs.10,000/-. Further the recurring deposit is also made for a fixed tenure and, therefore, the same is akin to time deposit. It is, therefore, proposed to amend the definition of ‘time deposits’ so as to include recurring deposits within its scope for the purposes of deduction of tax under section 194A of the Act. Therefore, TDS at the rate of 10% on recurring deposit interest over threshold limit of Rs 10,000 shall also be applicable for depositors.

Tax deduction at source (TDS) on pre-mature withdrawal from EPF

Since the withdrawal of accumulated balance by an employee from the EPF is exempt from taxation, however, in order to discourage pre-mature withdrawal and to promote long term savings, it has been provided that such withdrawal shall be taxable if the employee makes withdrawal before continuous service of five years other than the cases of termination due to ill health, closure of business, etc. and does not opt for transfer of accumulated balance to new employer. For ensuring collection of tax in respect of these withdrawals, it is, therefore, proposed to insert a new provision in Act for deduction of tax at the rate of 10% on pre-mature taxable withdrawal from EPFS. However, to reduce the compliance burden of the employees having taxable income below the taxable limit, it is also proposed to provide a threshold of payment of Rs.30,000/- for applicability of this proposed provision.

Tax neutrality on merger of similar schemes of Mutual Funds

In order to facilitate consolidation of such schemes of mutual funds in the interest of the investors, it is proposed to provide tax neutrality to unit holders upon consolidation or merger of mutual fund schemes provided that the consolidation is of two or more schemes of an equity oriented fund or two or more schemes of a fund other than equity oriented fund. It is further proposed that the cost of acquisition of the units of consolidated scheme shall be the cost of units in the consolidating scheme and period of holding of the units of the consolidated scheme shall include the period for which the units in consolidating schemes were held by the assessee.

Monetization of Gold

It proposed to allow Gold Monetization Scheme to allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account to be introduced. It is also proposed to develop an alternate financial asset, a sovereign gold bond, as an alternative to purchasing metal gold. The bonds will carry a fixed rate of interest, and also be redeemable in cash in terms of the face value of the gold, at the time of redemption by the holder of the bond. Proposed Gold Monetization Scheme will replace both the present Gold Deposit and Gold metal Loan Schemes. The Government also proposed to commence work on developing an Indian gold coin, which will carry the Ashok Chakra on its face. Such an Indian gold coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country.

Final Remarks

Although, the FM could not able to live up in aam aadmi expectations, he has tried to do a balancing act, promoting growth and giving social security in a way. The thrust of budget remained on rural empowerment, infrastructure development, encouraging industrial growth and reducing regional disparity. But given the commitment to walk tight on the path of fiscal consolidation, let’s do hope for the next fiscal budget.

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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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