The budget 2016 has been a milestone. It has tried to improve the economic situation of whole nation. It avoided to give visible concession to the individual taxpayer. But It is focussed on to improve the rural economy. There is more tax burden on the rich but middle class would get some tax benefit.
The spending in rural infrastructure is phenomenal. It would ultimately help the nation at large. I giving budget 2016 highlights for the individual taxpayer perspective.
Budget 2016 Highlights in Detail
1. No Change in Income Tax Slab
The salaried class eagerly wait the budget in the hope of some tax saving. Generally the increase in the income tax slabs give such relief. But in the budget 2016, government has not changed the income tax slab. It means, this year, the tax liability is going to increase with the increase in the salary.
2. No Change In 80C Limit
The section 80C of the income tax act gives you fantastic opportunity to reduce the tax outgo substantially. For a person who come is 30% income tax slab, the tax deduction under 80C can save tax upto Rs 46,350. The taxpayers were hoping that 80C limit would be increased from the current 1.5 lacs.
But government left it intact. The 80C tax deduction limit remains at 1.5 lacs for the FY 2016-7.
3. Income Tax Rebate Increased
Government did not touched the income tax slab in budget 2016 but it has tried to give relief to the middle class. This tax relief is given in the form of rebate. In financial year 2015-16 as well there was a rebate of Rs 2000. This year the income tax rebate has been increased to Rs 5000.
Because of the rebate, those who earns upto Rs 3 lacs per do not need to pay any tax. Using 80 C deduction, once can make income upto Rs 4.5 lacs tax free.
- The rebate is only available to resident individuals. The HUF, NRI, firms and institutions can’t claim this rebate.
- The rebate is only for those who earns less than Rs 5 lacs. This limit of Rs 5 lacs is for the net taxable income. The net taxable income is the amount which arrives after applying all the exemptions and deductions.
4. Surcharge Increased
While government has tried to give some relief to middle class by increasing the rebate, it has put some more burden on the wealthy taxpayers. The government has increased the surcharge in budget 2016.
- The income tax surcharge has increased from 12% to 15%.
- The surcharge is levied if the net taxable income exceeds Rs 1 crore.
- The surcharge is computed on the payable tax. It means the total tax increases by the 15%.
- A marginal relief is given to those who might bear unjustifiable burden because of the surcharge.
5. Rent Exemption Increased
The government gives tax exemption to those who lives in a rented house. You get this exemption in therm form of HRA exemption if your employer gives you house rent allowance. But what about who do not get HRA from the employer. The self employed and small businessman do not get the HRA.
Such people also get tax exemption according to section 80GG. This section give tax exemption on the rent paid every month. The limit for his exemption was 2000 per month.
- Now the rent exemption under section 80GG is increased to Rs 5000/month.
- The rent exemption is available only to individuals and HUF.
- One should not get HRA for this exemption.
6. Home Loan Interest Exemption
To promote the home purchase the government has given more tax benefit to first time home buyer. They would be able to claim more tax deduction for home loan interest.
A home loan EMI gives you tax benefit in two ways. As an EMI has two parts, the principal and interest. The principal part of EMI can be used for tax deduction under section 80C.
Whereas the interest part of EMI gets tax deduction under section 24. This tax deduction because of home loan interest was limited to 2 lacs. Last year limit was increased to 2.0 lacs. Now this limit is further increased to 2.5 lacs. (section 80EE) You would get extra opportunity of tax deduction on Rs 50,000. However, there are some limitation for this extra tax benefit.
- The extra tax deduction on home loan interest is only for the first time buyer.
- The cost of home should not be more than the Rs 50 lacs.
- The home loan amount should not be more than Rs 35 lacs.
- The home loan should be sanctioned during 1st April 2016 – 31st March 2017.
- The benefit of this extra tax deduction is available from 1st April 2017.
7. Pre Construction Period Raised From 3 to 5 years
The home loan repayment gives you substantial tax benefit. This benefit is also available if the bought property is in the process of construction. Till now you can get the tax benefit on home loan, what if, you get the possession upto 3 years. There was relaxation of up to 3 years. This relaxation was very useful for the under construction properties.
In the budget 2016, the government has further relaxed this norm. Now, the tax benefit is available if the acquisition of house takes up to 5 years. This provision would be very beneficial for the buyer of a under construction building which takes longer time to complete.
8. Tax Exemption on NPS withdrawal
Finally the government has agreed to give more tax concession to the NPS. It has taken another step to make NPS more attractive. Till now the NPS withdrawal was taxable. Now government would give tax concession at the time of withdrawal as well.
The 40% amount of the NPS would be exempted from income tax. The remaining 60% would be taxed. However, you can further decrease the tax outgo on this 60% if you opt for an annuity scheme.
9. Tax Introduction on EPF Withdrawal
To give the NPS level playing field, the government is making Employee Provident Fund less lucrative. Like NPS, only 40% of EPF withdrawal amount would be tax exempted. Remaining 60% would be taxed. It seems very rude shock. But there is a caveat. You should not feel cheated.
This provision of tax on 60 of the withdrawal is applicable on the contribution which would be made after 1st April 2016. The EPF corpus till 31st March and interest upon it would remain tax exempted as earlier.
Note, the withdrawal rules for provident fund were changed few days back. Now you can’t withdraw full EPF corpus before the retirement.
10. Government Will pay EPS subscription For first Three Years
To promote the EPF subscription, Government is incentivizing the employer as well. According to the EPF rules, an employee has to contribute 12% of its salary towards EPF. The employer has to also contribute similar amount. From the employer 12% contribution, 8.33% goes towards the employee pension scheme.
Now, the government will give this 8.33% contribution of Employee Pension Scheme in place of the employer. This benefit has following limitations.
- The government would contribute only for new employee.
- The government would contribute only for 3 years.
- The salary of the employee should not be more than Rs 15,000. It means government would contribute maximum Rs 1250 per month for each employee.
11. Pension Exemption Curbed in Budget 2016
There would be a limit of tax exemption on the contribution to the pension fund by the employer. Till now, there is no such limit. An employer can deposit as much as it wants in the pension account of an employee. To keep the parity with the EPF, the government has limited this deduction up to the 1.5 lacs.
Now, the tax exemption on employer’s contribution to the pension fund is limited to 1.5 lacs.
12. Transfer Funds from EPF to NPS without paying any Tax
NPS has been made attractive while EPF is losing its charm. In this changing scenario, there would be some people who would like to shift to NPS instead of EPF. Such transfer would be made possible. Also, there would not be any tax liability on withdrawal of EPF for the purpose of investing into the NPS. This provision is announced in the Budget 2016, however clarity is required.
13. The withdrawal of NPS after the Death is 100% Tax-free
The 60% withdrawal amount of the National Pension System is taxable in natural course. But in the case of premature death, the whole NPS corpus would be exempt from the tax for the nominee. So the aggrieved family would be spared of the tax.
14. Dividend Distribution Tax on High Value
To tax the riches government has come with another provision. This rule would affect those who has big shareholding in the companies.
- The government would collect the dividend distribution tax if the value of total dividend goes above Rs 10 lacs.
- The rate of dividend distribution tax would be 10%.
- The DDT would be charged on the amount which exceeds Rs 10 lacs.
- The dividend can be from a single or multiple company. The gross value of the dividend would considered.
15. TCS on High Value Transactions
The government also wants to check the black money in the system. The best way to stop black money would be keeping tab on high value transaction. The black money is often used to buy high value goods and services.
Therefore, the government has mandated tax collection at source (TCS) for high value transactions.
- If anyone buys a vehicle of more than Rs 10 lacs, the TCS would be applicable.
- Further, goods purchased in cash of Rs 2 lacs would become eligible for tax collection at source.
- Availing service of more than Rs 2 lac would be also subject to TCS.
- The seller would collect the tax from the buyer
- The rate of this TCS on such high value transaction would be 1%.
16. Income Declaration Scheme Introduced
The government is trying to bring the undisclosed black money into the system. To meet this objective the income declaration Scheme is introduced. Some months back similar scheme was launched for black money deposited in foreign banks. This type of scheme came after 20 years.
The scheme is for those income which was not detected by the income tax department. By paying tax on this income one can make his money into the white. The government will only ask for tax, surcharge and penalty. The total liability would be 45%. The scheme is lucrative for those who want to come clean without paying hefty penalty. The income tax penalty can go upto 300%. The scheme would start from 1st June 2016.
17. No capital gains tax on Gold bond Redemption and Indexation Benefit
As expected Sovereign gold bond would get exemption from capital gains tax. This exemption would be available at the redemption on maturity date. If Gold bond is sold in the bond market the resultant capital gains would be subject to the capital gains tax. However, the indexation benefit would be available to such capital gains.
18. Interest Income from Gold Monetization Scheme is Tax-free
To promote gold monetization scheme, the government has given it some tax exemption. The interest income from the gold monetization scheme would not be taxable. The budget 2016 has exempted gold monetization scheme from the tax.
19. Health Insurance For Weaker Section
The government has announced a universal health protection scheme for weaker section. The government ‘Health Protection Scheme’ give health insurance cover of Rs 1 lac to every family. For senior citizens, additional top up package up to of Rs 30,000 would be provided.
20. Service Tax Reduced in Single Premium Annuity policy
There would be less service tax on single premium annuity policy. It is reduced from 3.5% to 1.4%. It will help the annuity policies.
These were the highlights of Budget 2016. The budget 2016 has given enough focus to the social sector. It tried to make the NPS more lucrative. There is an effort to bring more people under the umbrella of social security. The health insurance scheme for poor is indeed a noble initiative.