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HindustanTimes Wed,17 Sep 2014

A fine platform for financial planning

Ranjeet Mudholkar, Vice Chairman and CEO: FPSB, India , Hindustan Times   July 11, 2014
First Published: 00:59 IST(11/7/2014) | Last Updated: 01:05 IST(11/7/2014)

For the finance minister, it is an act of fine balancing act to present an enlarged vision to sustain and streamline the economy on the macro front, and at the same time addressing the micro issues. The announcement of an expenditure management commission is welcome.

The impact of the changes in tax provisions on the lives of individual tax payers is mixed at best. The important features in the income-tax provisions are:

1. Increase in the basic exemption limit from Rs. 2 lakh to Rs. 2.5 lakh for all citizens and from Rs. 2.5 lakh to Rs. 3 lakh for senior citizens.

2. Enhancement in the Section 80C savings limit from Rs. 1 lakh to Rs. 1.5 lakh.

3. Increase in the tax deduction under Section 24(b) for interest paid on housing loan on self-occupied property.

The combined effect of these measures will broadly amount to annual tax savings for individuals to the extent of Rs. 36,050 in the 30% tax bracket, Rs. 25,750 in the 20% tax bracket and Rs. 15,450 in the 10% tax bracket. The Rs. 50,000 increase in basic tax exemption is substantial by previous budget standards, notwithstanding the impact of inflation over the years.

Similarly, ceiling on deduction of `1 lakh under Section 80C was last fixed almost a decade ago. This increase of Rs. 50,000 is welcome.

The tax benefit under Section 24(b) had similarly remained static since 2001 though property prices have gone up at least by 4 times in the same period. In this context, though inadequate, such Rs. 50,000 additional deduction is also a good relief. If an individual avails of up to Rs. 2 lakh deduction towards housing loan interest under Section 24(b) and up to Rs. 1.5 lakh principal repayment under Section 80C, s/he can now benefit with additional tax savings of more than Rs. 2.1 lakh in a 3-year period on a Rs. 20-lakh loan for a 10-year period at the current interest rate of 10.25% per annum.

Some measures to boost small savings of individuals are the increase in the ceiling of Public Provident Fund (PPF) scheme from Rs. 1 lakh to Rs. 1.5 lakh. The tax advantage of Exempt- Exempt-Exempt available in the PPF scheme can generate a corpus of Rs. 52.45 lakh from just under Rs. 35 lakh now, if maximum permissible savings are done. Reintroduction of Kisan Vikas Patra and a special small savings scheme for the education and marriage of the girl child are encouraging steps.  

Another welcome measure is the treatment of capital gains on transfer of debt mutual fund units from 12 months to 36 months while also increasing long-term capital gains from 10% to 20%.

Though the expectations were very high, the above measures are no small steps and signal a streamlining of personal finances to encourage systematic and long-term savings in a true financial planning manner.


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