Budget 2016 : 25 changes and how they will affect you?

Today Finance Minister presented the Budget 2016. There was a lot of news, noise and many MAYs around the groups, media, and experts. Now all of them hope silenced 🙂

Let us see the major changes.

1) There is no Change in your tax slabs and Sec.80C limit.

There is no change in your tax slab. The same tax rate as that of last year will continue. They are as below.

Also, the common man’s favourite tax saving tool Sec.80C limit was also not changed.

2) Health Insurance for Senior Citizens–

A Health Insurance Scheme will be launched for senior citizens whose age is 60 years and above. The sum insured under this scheme will be Rs.1, 00,000 and one can opt a top up of Rs.30, 000 above this Rs.1, 00,000 limits.

This I feel a great social initiative. Because considering the health cost and the probability of being hospitalized is more in case of senior citizens, I felt this was the best initiative.

3) TDS limit for EPF withdrawal raised from current Rs.30,000 to Rs.50,000–

Earlier if you withdraw EPF within 5 years and the amount is less than Rs.30,000 then there will be TDS of 10%. However, this limit now raised to Rs.50,000.

How the TDS will flow in case of EPF withdrawal was explained in my earlier post. Jut go through it. Otherwise, follow the below image.

• EPF Withdrawal Taxation-New TDS (Tax Deducted at Source) Rules

Finance Minister today proposed to 3,000 stores of generic medicine stores will be opened across the country under Prime Minister’s Jan Aushadhi Yojana.

Promoting the generic medicines by the Government will actually reduce the cost of medicines. This is a one of the best initiative.

4) Start a National Dialysis Services Programme–

Nowadays dialysis cost is so horrible that the kidney failure patients find it difficult to manage it. Hence, Finance Minister proposed start dialysis services in all district hospitals under National Dialysis Services Programme.

5) Government will pay 8.33% of the EPS contribution for 3 years for new employees–

What is this? Usually, in 12% of employer’s contribution 8.33% will go towards EPS. This 8.33% will be payable by Government for the first 3 years of employment. The condition here is that the employee must be NEW in that organization and the salary must be less than Rs.15, 000.

This entire benefit will not be applicable to you. But it is totally beneficial to the EMPLOYER. Because the 8.33% of the contribution is from their pocket, which Government want to incentivize for 3 years. So nothing beneficial to you.

6) Soon you will find ATMs in post offices–

To provide the better access to financial services and especially to bring rural folk into accessing of technology, Government proposed to open ATMs and Micro ATMs in Post Office in next 3 years.

7) Tax Rebate under Sec.87A is raised from Rs.2,000 to Rs.5,000-

Let us first understand what is Sec.87A. This is applicable to below taxpayers.

# This Rebate is available only to RESIDENT INDIVIDUALS (but not to HUF, NRIs, AOP or BOI).

# Your total income must be less than Rs.5,00,000 in a year. (Total Income=Income Under All Heads-Deductions from Sec.80C to Sec.80U).

If above conditions are met, then you can show the rebate of Rs.5,000 from your income.

8) Section 80GG limit raised from Rs.24,000 a year to Rs.60,000 a year–

What is Sec.80GG? I already wrote a post on it long back. You can refer it “Section 80GG Deduction-Get Tax Benefit on rent paid if not getting HRA !!!“. Just I will repeat the eligibility condition as below.

# This section is only applicable to Individual or HUF.

# Tax Payer may be either salaried or a self-employed. However, must not be getting HRA.

# Tax Payer may be either salaried or a self-employed. However, must not be getting HRA.

# Tax Payer himself or spouse/Minor Child/HUF of which he is a member should not own any accommodation at a place where he is doing a job or business

# If Tax Payer owns house at a place other than the place noted above, then the concession in respect of self-occupied property is not claimed by him [Under Section 23 (2) (a) or 23 (4) (a)].Tax Payer has to file a declaration in

#Tax Payer has to file a declaration in Form No.10BA regarding the expenditure incurred by him towards the payment of rent.

If the above five conditions are satisfied, the amount deductible under Section 80GG is LEAST OF THE FOLLOWING.

• Rs.5, 000 per month;
• 25% of total income of taxpayer for the year; or
• Rent Paid less 10% of total income (Rent Paid-10% of Total Income).

9) NPS 40% withdrawal at the time of retirement from such retirement corpus is tax-free.

Earlier, both the 60% lump sum withdrawal and the 40% annuity both are taxed as per your tax slab at your retirement. Now Government changed it to bit tax-free. Now onward withdrawal up to 40% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme.

However, do remember that remaining taxation of NPS are as usual. Annuity will be taxed as per your tax slab in your retirement.

10) Superannuation Funds and Recognized Provident Funds (including EPF) withdrawal at the time of retirement will be taxed !

Earlier if your service is more than 5 years, then at the time of retirement (58 Years) this whole amount (Employee+Employer contribution+Interst on both) will be tax-free.

Now in interest accrued on your EPF contribution from the contribution period starting 1st Apri, 2016,  40% will be tax-free. Rest is taxed as per your tax slab. Rest 60% on such accrued interest will be taxed as per your tax slab. As usual there is no tax on you and your employer contribution. This is a biggest jolt to all salaried. However, Government given a bit relief that contributions made into EPF after 1st April, 2016 will be taxed as per this new rule. Earlier contribution and interest accrued thereon will be tax-free.

Also, this rule is not applicable to those whose salary (Basic+DA) is less than Rs.15,000.

After lot of confusion Revenue Secretary Hasmukh Adhia, cleared the noise by saying “Small salaried employees with up to Rs. 15,000 per month income will be kept out of purview of proposed taxation of EPF. Only interest accrued on 60 per cent contribution to EPF after April 1, 2016 will be taxed. The principal amount will remain tax exempt,”.

11) Additional interest of Rs.50,000 tax benefits for new home loans–

Earlier any interest payment towards home loans will be available for tax benefit under Sec.24 of IT Act up to Rs.2,00,000 in a financial year. Now this is raised to another Rs.50,000. However, this additional Rs.50,000 tax benefit on interest of home loan will be available for below categories of loans.

# Loan amount must be less than Rs.35 lakh.

# Value of house must not be more than Rs.60 lakh.

# This will be applicable from next financial year.

12) 10% Tax levied if your dividend income is more than Rs.10 lakh per year.

Earlier dividend distribution tax was same irrespective of the how much you receive as dividend. Now Government imposed a limit on this. If your dividend income in a year is more than Rs.10 lakh, then apart from dividend distribution tax, you also be taxed at 10%.

13) TDS of 1% if you buy a car valued more than Rs.10 lakh or on the purchase of goods and service exceeding Rs.2 lakh.

To bring more transparency in financial dealings, Government brings in 1% TDS if you buy a car valued at more than Rs.10 lakh or purchase any goods and service exceeding Rs.2 lakh.

This I think brings in control of black money to certain extent.

14) Security Transaction Tax (STT) raised for options–

When you sell any option contract in Future and Option Market of stock exchange, then seller have to pay the STT tax. This was earlier at 0.017%. But it is now increased to 0.05%.

15) New cess imposed called as Krishi Kalyan Cess-

This additional cess will be applicable to all taxable services. This cess will be utilized for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June 2016.

16) TDS on NRIs will be reduced if they provide the alternative documents–

Currently, TDS for NRIs is higher than the Indian Residents. However, now if NRIs provide alternative documents, then this will be reduced.

However, how much is to be reduced or what do you mean by “alternative documents” are not yet clear.

17) Redemption of Sovereign Gold Bonds will not be charged for capital gain tax-

To boost the Sovereign Gold Bonds, finance minister today proposed that in case you redeem this bond then there will not be any capital gain tax.

However, if you transfer such bonds, then the long term capital gain tax will be with indexation benefit.

18) Transfer Mutual Fund units in case of merger or consolidation of schemes are free from capital gain tax-

When funds merge or consolidate then such transfer of units will be considered for capital gain tax.

19) Maximum contribution towards superannuation fund or recognized provident fund is restricted to Rs.1.5 lakh for employer. 

For employer from now onward the maximum contribution in a year towards superannuation or recognized provident fund is set to maximum of Rs.1.5 lakh a year.

20) Death claim received under NPS is tax-free–

Any death claim received under NPS to nominee is purely tax-free.

21) One-time portability from EPF or Superannuation to NPS is tax-free

Now you can opt for portability from EPF and Superannuation to NPS without any tax hurdles. This is evident now that Government is pushing for NPS rather than EPF.

22) Pre-Construction period for taxation purpose raised from 3 years to 5 years-

Earlier to claim tax benefits on home loan of a Self-occupied Property, the construction has to be completed within 3 years from the end of the Financial Year in which the capital (home loan) borrowed.

Now it is raised to 5 years. This change will be effective from 1st April. 2017.

23) Date of Agreement is the date of transfer for immovable property-

It is clear that the date of agreement is the date of transfer of immovable property, but not the date of registration of immovable property.

24) Threshold limit for audit for professionals raised from current Rs.25 lakh to Rs.1 Cr.-

If you are professional and your income is Rs.25 lakh in a year, then you must audit it according to Sec.44AB. Now this limit is raised to Rs.1 Cr.

25) Reduction in service tax for Single Premium Annuity policies-

Finance Minister proposed to reduce the service tax on single premium annuity insurance policies from existing 3.5% to 1.4% of the premium paid.