Budget 2015-20 Changes that affect your Personal Finance

There was huge expectation before Budget 2015 that Modi Govt will bring moon to all of us. Few created big lists of expectation. However, all were disappointed when the much awaited tax slabs not changed. So let us see what the changes are proposed in this Budget 2015 and how they affect your finance.

Yesterday I listed the major points of Budget 2015 and created a video on this. Please have a look at below video for the same.

Let us discuss each point in detail.

1) No revision Tax Slabs and Sec.80C limit–

Finance minister has not touched the tax slabs and famous Sec.80C limit. So the earlier FY 2014-15 (AY 2015-16) tax slabs will continue. This is actually a big blow to salaried. They thought FM would revise it to some extent. However, no such magic happened. 

2) Sec.80D Health Insurance Premium limit raised–

Earlier health insurance premium limit under Sec.80D was Rs.15, 000 for individual and HUF taxpayers. An individual can claim deduction towards the health insurance premium paid to himself, spouse, dependent parents, or dependent children of the assessee. In case of HUF, it is any member of a family. 

Now this limit is raised to Rs.25, 000 per year for individual and HUF. At the same time, for senior citizens, it is raised to Rs.30, 000 (from the earlier Rs.20, 000). So overall for your family you can save up to Rs.55, 000 (On own family Rs.25, 000+Rs.30, 000 for senior citizen parents). 

This budget gave some relief to senior citizens whose age is 80 yrs and above. Usually none of health insurance companies offers health insurance to these citizens. Hence, any health expenditure up to Rs.30, 000 can be claimed as deduction under Sec.80D. 

This upgrading of limit actually a big relief for all. Because you notice the hospitalization cost these days. So buy a proper health insurance, you must go for a higher sum assured. By increasing the premium limit under Sec.80D, the Government actually pushes for health insurance to all.

You can chose best health insurance for you based on my earlier post “IRDA Incurred Claim Ratio-How to choose the best health Insurance?”

3) New Pension Scheme (NPS) limit raised to Rs.1, 50,000–

Earlier the limit under Sec.80CCD (1) was Rs.1, 00,000. This Sec.80CCD deduction relates to your contribution to NPS (either an individual or employee). Now this limit is raised to Rs.1, 50,000. 

4) Transport allowance limit raised–

Earlier the monthly limit was Rs.800. Now it is doubled, i.e. Rs.1, 600 per month. Therefore, if you receive a transport allowance in your salary, then this is again a huge advantage for you. I feel this is a good move considering the cost of managing vehicle.

5) Now TDS (Tax Deducted at Source) on your RD (Recurring Deposits) too– 

Even though interest earned from RDs is taxable, but as of now, there was no TDS. Therefore, many people felt it easy to skip paying taxes on this. However, in this budget Govt amended Sec.194A. So effective from 1st June 2015-TDS of 10% on all your RDs under Sec.194A. However, there will be no TDS on RDs whose total interest is less than Rs.10, 000 in a year. This will protect small investors. Anyhow, it is wrong to believe that NO TDS means NO TAX. You still be liable for tax according to your individual tax slab on RDs.

6) Sukanya Samriddhi Account now with huge tax benefits–

Earlier, when the Sukany Samriddhi Account was launched, it was ETE. Means whatever you invest in this scheme will be available for tax benefit under Sec.80C. Interest earned was taxable (as is NSC) but maturity was said as tax-free. However, in this budget FM declared that interest earned from this scheme is full tax-free. Therefore, it is now treated as an EEE scheme (Exempt while investing, interest earned is exempt and maturity exempt). 

If we consider the current trend then between Sukanya Samriddhi Account Vs PPF, I feel Sukanya Samriddhi Account holds good except on liquidity issue and some other minor features. 

7) Service Tax raised to 14% from an earlier 12 %–

Earlier the service tax was 12% (excluding cess) and now it is raised to 14%. Along with that 2%, Swachh Bharat Cess also included. So earlier, it is 12.36%. Now it is 14.5% of service tax (14% Service Tax+0.2% Education Cess @ 2%+0.2% Swachh Bharat Cess @2%+0.1% Senior and Higher Education Cess @ 1%).

8) Wealth Tax discontinued, but with a surcharge of 2% if income is Rs.1 Cr or more–

Earlier the wealth tax was collected to those individuals and HUF if their Net Wealth exceeds Rs.30 lakh on the last date of the previous year on certain assets. Now such tax was abolished. To compensate the loss, FM introduced 2% surcharge on individual or HUF if their income is Rs.1 Cr or more. This move actually brings in more income to Govt than wealth tax. 

9) 100% Tax Deduction under Sec.80G if you donate to Swachh Bharat and Clean Ganga–

Whatever you contribute to Swachh Bharat and Clean Ganga schemes, the whole amount can be availed as deduction under Sec.80G. Let us contribute to these noble causes 🙂

10) PAN Card mandatory for all buy or sell of above Rs.1 lakh–

From now onward if you want to buy anything, which is more than Rs.1 Lakh, then you have to quote your PAN number. This will bring the transaction into legality and tax angel. Hence there is no escape from avoiding tax or doing illegal transactions. Even FM also pointed that if someone tries to split the amount to make sure that the payment will be within Rs.1 lakh then too it will be tracked and penalize for such misdeed. From now onward, it is prohibited of acceptance or payment of an advance of Rs 20,000 or more in cash for purchase of immovable property.

11) Option to choose between EPF or NPS–

From now onward, you have the option to choose between EPF or NPS. This gives some flexibility to employees to choose. However, this option is only meant for certain employees whose income is limited (This limit is not yet cleared as of now). Let us wait for more clarity on this.

12) Merger of two mutual fund schemes will not effect in your tax– 

Let us say you invested in mutual fund ABC and after a few years, this ABC scheme took over by new scheme XYZ. Then whatever the units you hold in ABC will have to be moved to XYZ. So as of now coming out of the mutual fund scheme ABC used to attract applicable tax laws (like LTCG or STCG). However, from now onward there will be no such tax in case of two mutual funds merger.

13) Surcharge on Dividend Distribution Tax (DDT) Debt Mutual Funds raised from 10% to 12%

You will now receive less dividends that earlier from your Debt Mutual Funds. Because surcharge on DDT raised to 12% from an earlier 10%. Earlier the DDT tax used to be 28.325% (DDT 25%+10% Surcharge+3% Cess). Now it is 28.840% (DDT 25%+12% Surcharge+3% Cess). 

14) Introduction of Tax Free Bonds–

FM has proposed to introduce Tax Free Bonds. This will be good for those who are looking for tax-free instruments and stable income. FM announced that Rs.20,000 Cr worth of bonds will be issued to cater the infra, railway, and road projects. The interest from these bonds will be tax-free.

15) New Accidental Insurance which cost you Rs.12 a year !!!

FM has proposed to introduce the new accidental insurance called Pradhan Mantri Suraksham Bima Yojana. Sum Insured under this scheme is Rs.2, 00,000 and yearly premium is just Rs.12 a year.

16) Introduction of Gold Bonds and Gold Deposit Schemes-

If your motive is to invest in gold, but not for personal use then Gold Bonds will be for you. These are exactly like Gold ETFs or Gold Mutual Funds. So underlying asset will be gold and managed by Govt. I do not know how these are beneficial compare to Gold ETFs and Gold Mutual Funds. Let us see…

Let us say you have gold in nature of bars and coins (but not in the form of jewellery) then you can deposit into Gold Deposit Schemes and earn some interest on idle gold.

17) New Life Insurance of Rs.2, 00,000 for the yearly premium of Rs.300-

FM has proposed a new Life Insurance Pradhan Mantri Jeevan Jyoti Bima Yojana. This will offer you Rs.2, 00,000 Sum Assured. This covers accidental or natural death. The premium will be Rs.330 per year. Age group eligible to buy this plan are between 18 Yrs to 50 Yrs of age.

18) You will get benefit for usage of Credit/Debit cards–

FM announced that Govt would come up with some incentives to promote the cash free money transactions. This includes usage of Credit/Debit cards or internet banking. This is actually the safest way of transactions. In addition, it prohibits illegal cash movement. 

19) Tax evaders will be penalized heavily–

Tax evasion in related to foreign asset will lead to 10 yrs of rigorous punishment and 300% as a penalty on asset value. If you fail to file/hide information while filing return will lead to 7 Yrs of rigorous punishment. Therefore, it is now onward mandatory to file returns on assets you hold in foreign. Govt also proposed to introduce Benami Transactions (Prohibition) Bill to curb domestic black money.

20) Unclaimed EPF and PPF amount usage–

FM has proposed that unclaimed EPF and PPF amount, which is idle with Govt, would be utilized for Senior Citizen Welfare Fund. This may to some extent give some benefits to seniors. 

To me apart from untouched tax slabs, rest of features looks attractive. I know many salaried not happy with this budget. But let us move and utilize the changes to our best.