With a change of guard in the Center the recent general election, a lot was expected in terms of reforms which were expected to give an adrenaline shot to our economy. However the finance minister decided to keep it simple and practical making it more tax-payer friendly and also exhibited glimpse of what is about to come in the coming years from this government, although this budget would have impacted the common man in several ways.
Here we discuss how this budget would affect your future financial planning.
Income Tax Slab
The highlight of this budget is the change in the income tax slab. The minimum taxable income has increased to Rs 2.5 lacs from the previous Rs 2 lacs for individuals below 60 years of age and Rs 3 lacs from Rs 2.5 lacs for citizens of age 60 years or more which results in additional tax savings of Rs 5000 for a person having income below Rs. 5 lacs.
Tax Savings Options
In addition to the tax slab change, finance minister has also enhanced tax savings options by increasing the maximum limit for savings under section 80 C by 50%. The maximum contribution to PPF has also increased to Rs 1.5 lacs and also introduced Kisan Vikas Patra (KVP) scheme which was withdrawn in 2011.
Home Loan Interest
A huge relief for the people paying EMI for their home as the deduction u/s 24 for home loan interest has been increased from 1.5 lacs to Rs 2.0 lacs
Lets understand these tax savings through the below table –
|Assessment Year 2013-14||Assessment Year 2014-15|
|Deduction u/s 80 C||100000||150000|
|Deduction u/s 24 B ( Home Loan Interest for self occupied home)||150000||200000|
For a person with annual income of Rs 15 lacs, he can save taxes up to Rs 36050 that makes Rs 3000 per month (approx) more to save. These changes are always welcome as they will increase net surplus per month and induce more investments
For the mutual fund investors, this budget has a limited benefit as the holding period for non equity based mutual funds have been raised to 36 months from 12 months which means these funds would be taxable as per your income slab if liquidated before 36 months (short term capital gain). The tax rate for long term capital gain of 10% has been increased to 20%. This change would impact the investments made in debt funds and the gold funds but encourage more investment in equity based mutual funds as the tax rates for them remains unchanged for this financial year.
Looking at the existing inflationary situation, these steps would help the common man to save more and enhance the purchasing power. In long run these savings would increase, provided the price rise is kept under check.
The new budgetary decision would have a positive impact on the markets as it has increased the opportunities for further investments and improved the sentiment amongst the investors. For the existing investors who are investing for long term, it won’t impact much of their investments.
As far as investment strategy is concerned there will be some consequences on the investments made for debt and gold funds but looking the balance they provide against the uncertainties in the equity market, the investor should look at the long term benefits and not be concerned about just the tax impact on their portfolio.
Written By Arthayantra