Savers and investors, pinched by inflation, are widely expected to get sops to put away more in the piggy bank in the upcoming Union Budget. Here are a few measures, culled from a long list that may materialise.
The first tax slab for the salaried, which is completely exempt from tax, was increased from Rs 1.8 lakh to Rs 2 lakh in the last Budget, in line with the recommendations of the Direct Taxes Code Bill. This is expected to be raised further in this Budget.
The Parliamentary Standing Committee has recommended a further increase in the tax exemption limit to Rs 3 lakh. If that seems too steep, it is hoped that the limit will at the least go up to Rs 2.5 lakh. The Finance Minister is likely to help you with investing that extra money he is putting in your hands too.
The Rajiv Gandhi Equity Savings Scheme that was introduced in the last Budget now offers a tax break on Rs 25,000 of investments.
This cap may be raised. The eligibility criteria for investing in this scheme are also expected to be relaxed. There may be some additional tax incentives for investment in corporate bonds too.
Lower tax rates, however, may not extend to the so-called ‘super-rich’ — namely salary earners with pay cheques of over Rs 20 lakh a year. They may face a higher tax burden in 2013-14 with clamour for the Government to increase the tax rate on the highest slab to 40 per cent.
Changes in section 80C
With financial savings in the doldrums, the Budget is widely expected to do its bit by promoting mutual funds, shares and bonds. A slew of benefits are expected under section 80C of the Income-Tax Act, which allows you to deduct up to Rs 1 lakh a year from your taxable income.
First, the deduction limit of Rs 1 lakh may be increased. The insurance industry is expecting a separate exemption for Rs 1 lakh worth of pension and life-insurance products.
Also, it is hoped that the amount received from various pension products and annuity schemes will be made tax exempt for policy holders, similar to the Government’s New Pension Scheme. The Budget is also expected to address the problem of rising healthcare costs by allowing higher deduction on health-insurance premium.
On insurance, in the last Budget, to the chagrin of single-premium ULIP holders, the Finance Minister tweaked rules saying that for claiming deductions, the premium on a life-insurance policy should not exceed 10 per cent (20 per cent earlier) of the policy value.
This year, the cap may be reduced further to 5 per cent aligning it with the Direct Taxes Code Bill. This could effectively mean that the tax sops are available only on pure term-insurance plans which charge low premiums and not on ULIPs.
The insurance industry, however, wants the tax relief on insurance policies to be linked to the term of the policy rather than the sum assured.
For home buyers
The Budget may bring good news to home buyers. First, there is the long-pending request for increasing the limit for home-loan interest deductions which stands at Rs 1.5 lakh a year.
This limit will be reached even if one buys a home worth Rs 16 lakh assuming an interest rate of 12 per cent, availing an 80 per cent loan. Now, the limit is expected to be increased to Rs 3 lakh.
Another key change hoped for is with respect to the investments in capital gains bonds. Currently, those earning long-term capital gains earned on selling assets such as property escape provided they are invested in capital gains bonds.
However, the entire sum is not tax exempt — the maximum limit is Rs 50 lakh. In the upcoming Budget, the Government is expected to remove this cap and divert the funds so raised to fund the infrastructure sector.
Assuming that you continue in your rented accommodation next year too, you may still receive some benefits. With rents increasing by many times, there is a demand for an increase in the amount of rent allowed as a deduction from total income.
Cheaper foreign holidays
Currently, leave travel allowance (LTA) can be claimed twice in four years only and that too just for domestic travel. This is unfortunate, as many people go on foreign holidays now. In the coming Budget, it is hoped that the Government will relax such conditions and include foreign travel under LTA, letting individuals also claim against LTA every year.
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