How the Budget will impact your finances

Anand Kalyanaraman Updated - February 28, 2013 at 09:58 PM.

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There was much hope that the Finance Minister would put more money in the hands of the ‘aam aadmi.’ After all, inflation has been raging and the common man’s savings has been dented. But sadly, it turned out to be an anti-climax. The Budget neither increased slabs nor did it reduce rates. So, the tax-exempt income limit stands at Rs 2 lakh, and the tax rates for different slabs stay the same — 10, 20 and 30 per cent.

Small concession

But the FM did make one concession for those of us whose taxable income is between 2 lakh and Rs 5 lakh. All such persons (1.8 crore tax payers) will get a tax credit of Rs 2,000 next year. Now, that might not seem like much, but guess something’s better than nothing. Maybe the majority of us should just be thankful that the Budget did not increase our tax outgo — as it has done in the case of 42,800 persons whose taxable income exceeds Rs 1 crore a year. They need to pay 10 per cent surcharge next year. So, if your taxable income is a rupee above Rs 1 crore the next year, you will have to pay Rs 2,91,490 in extra tax.

Good option for investment

The FM may not have given us tax goodies worth mentioning, but he plans to provide us a good option to invest in — inflation-indexed bonds or inflation-indexed national security certificates. Details are not out yet, but as and when this investment avenue opens up, it will be a good thing since it will protect our savings from inflation — that silent thief which keeps reducing the value of what we painstakingly save.

The Budget has also allowed some institutions to raise up to Rs 50,000 crore through tax-free bonds next year, double the limit allowed this year. Now, this may also a good investment option for investors in the higher tax-bracket since the interest on these bonds will not be subjected to tax.

But with interest rates in the economy likely to soften in the coming months, the rates on next year’s tax-free bonds will likely be lower than what such bonds offered this year. They may still beat returns from bank deposits though on a post-tax basis. So, look out for this investment option too next year.

Home loan

First-time home buyers and first-time investors in equity, too, have something to look forward to. Take a loan of up to Rs 25 lakh next year from banks or housing finance companies for your first home, and get an additional deduction of up to Rs 100,000 on the interest you pay for the loan.

This is over and above the Rs 1,50,000 deduction owners of self-occupied homes currently get towards the interest payment on their home loan.

If you plan to begin equity investments next year, the FM sweetened the deal for you a little more by liberalising the Rajiv Gandhi Equity Savings Scheme which was introduced in last year’s budget. Now, you can invest in mutual funds and listed shares, not just in one year but in three successive years. Also, with the income limit which makes you eligible for the scheme increased from Rs 10 lakh to Rs 12 lakh, the effective tax you can save can also go up. But be careful before jumping in — equity investments carry risk and don’t assure returns.

While the FM wants the small guy to save and invest, he wants the big guy who profits from selling immovable property such as houses to disclose his income and pay taxes.

So, next year onwards, if you get more than Rs 50 lakh from the transfer of immovable property, tax will be deducted at the rate of 1 per cent. But this rule does not apply on transfer of agricultural land.

Remember, the tax deducted could just be a small part of your tax liability. You will need to calculate tax on your capital gains and pay the difference, if any.

The Budget has also extended the scope of deductions under Section 80D (pertaining to health insurance) for contributions made to schemes of the Central Government and State Governments, which are similar to the Central Government Health Scheme.

Also, if you make donations to the National Children’s Fund, you will be eligible for 100 per cent deduction under Section 80G.

Published on February 28, 2013 16:28