Budget 2015 is much awaited for reasons more than one. This is going to be the first budget for a party that won Thumbs up victory with a clear parliamentary majority, claiming 274 votes in the Lok Sabha. This Budget 2015 is expected to present the clear short and long term vision of our honourable and dynamic Prime Minister Shri Narendra Modi. This euphoria has extended to the equity markets, amidst a slowing global economy and markets having spiralled reaching new highs, defying fundamentals. Budget 2015 is expected to be a reformist budget, and rightly so, because citizens have witnessed real-time changes, such as, reduced inflation, increased manufacturing activity and therefore sustained corporate earnings growth. Interest rate cuts have fueled economic growth. Reduced oil prices, have helped bridge the gap in our current account deficit. Anyone; would be excited to be a part of this radical change and witness India’s game changing momentum. Budget 2015 is one such trigger.
The salaried class are all eyes on the Finance Minister for the following benefits:
Raise in minimum Income Tax slab to Rs 3,00,000 from the current Rs 2,50,000 to compensate for rising inflationary trend in cost of living. This would also help in compliance by individuals and honest tax payers. Also, if the existing slab of Rs 250000-500000 and 500000 to 1000000 is removed; and one slab of Rs 3,00,000 to 10,00,000 introduced with a tax rate of 10% flat, 20% on income between Rs 10,00,000 to 20,00,000 and 30% on annual income above Rs 20,00,000.
This would be in accordance with the Direct Tax Code Bill 2010. This would encourage more savings among individuals, due to more disposable income.
Transportation Allowance: This allowance is archaic and low. Rs 800 per month do not fill the tanks of petrol in most cars today. In fact, it covers about 10 days of running the vehicle only. If this is increased to 2000- 3000pm, it would be help.
Children Education Allowance has been Rs 100 per month for decades. Do any parents in urban India, pay Rs 100 per month for their child’s tuition fee today? Definitely not! If this amount is inflation adjusted, it would help employees on their tax deduction benefits. Also, since Education/ tuition fee payments comprise a major portion of one’s monthly expense, it would help, if a separate tax deduction and tax law for this expense is introduced.
Health Insurance limit should be increased under Sec 80D. The current exemption under this section, allows for Health premium deduction of Rs 15000 premium paid for self and family and Rs 20,000 extra for health premiums paid for parents. Employees are hoping for an increase from Rs 35000 per annum to Rs 50,000 per annum premium deduction in this budget, considering inflation in medical expenses.
Medical Reimbursement paid by Employer: The Current Annual limit for medical reimbursement paid by employer to employee is Rs 15000 per annum. If this is increased to Rs 50,000 per annum due to rising cost of medical treatment, it would be a more realistic figure.
Exemption Limit of Rs 1, 50,000 under Sec 80 C: Currently an exemption limit of Rs 1,50,000 under Sec 80 C includes, EPF contribution of employee, insurance plan premiums, NSC, PPF, Principal repayment of home loan, FD, ELSS and other small savings. For some employees, the EPF itself, covers permissible limit. If this limit, is enhanced to Rs 2,00,000 or Rs 2,50,000 per annum, there would be more potential for savings with tax benefits.
Also, if a separate section for claiming only insurance premiums is introduced, it would help. Currently, deduction towards Sec 80CCC for pension policies and 80CCD for NPS is clubbed under many other savings under Sec 80 C itself. If a new Section with tax exemption is introduced only for retirement planning and pension savings, it would enhance long term retirement savings.
Also repayment of principal amount on home loan, is clubbed under this section. If this amount can be claimed as a separate deduction, it would help reduce the overcrowding this section has to offer.
Reintroduction of Standard Deduction for Salaried Individuals: Earlier, there was a fixed amount of Rs 1, 00,000-1, 50, 000 reduced from the income of the employees towards standard deduction. If this is reintroduced, the tax liability of individuals would reduce to some extent.
Exemption Limit on Rent Paid under Sec 80GG: If House Rent Allowance is not received, the exemption on rent paid to an individual is currently Rs 2000 per month. This amount was decided in the 90’s and rentals have gone up substantially after that. This exemption limit needs a revisit to match current inflated rental costs.
Increasing the ceiling on interest payment towards home loan: The current limit has been increased from 1, 50,000 to 2,00,000 in the last budget. However, a more favourable approach, is to increase this limit of tax deduction for home loan buyers to Rs 3, 00,000 per annum. This would also increase investment in the real estate sector.
Reforms in Infrastructure and shipping that were at logger heads for decades have started with a bang and the stage is set for more to come!
This article is contributed by Dilshad Billimoria, Member, The Financial Planners’ Guild, India and Director, Dilzer Consultants Pvt Ltd (a Sebi-Registered Investment Adviser)