Sunday, March 1, 2015

The Bad, Good, Great and Awesome - From the Indian Union Budget 2015

In the previous article we saw the key highlights of ourbudget 2015. However, one thing we did not see or cover in great detail was the impact this budget would have on the Individual Tax Payer – like you and me. The purpose of this article is to do just that.

This article is going to be classified in to 4 categories: Bad, Good, Great and Awesome

The Bad – From the Indian Union Budget 2015

The following are some of the “Bad” things from our 2015 Indian Union Budget from a common-man stand point.

Hike in Service Taxes

With the Service Tax hiked by about 1.6%, almost everything is going to get costlier by that much. Telco Services, Travel by Air/Bus, Eating out (Restaurants), Beauty Parlors and Salons etc that come under this Service Tax bucket are going to be costlier.

Income Tax Slabs – Left Untouched

If you had read my article last week on the expectations from the budget, you would’ve seen that I was strongly expecting a major revamp of our Individual Tax Slabs. Though I was being overly optimistic in my expectations, I was at least expecting a minor revision in the tax slabs however our Finance Minister left the tax slabs untouched. Adjusting these tax slabs could’ve left a lot more disposable income on the hands of the common man but sadly this did not happen 
Investment Limits Under Section 80C – Left Untouched 
Though this limit was hiked just last year, I was definitely expecting this to be increased to boost household savings and investments. However, this is yet another area that was left untouched.

Reimbursement/Exemption for Medical Expenses – Left Untouched 
If there is one thing everyone will agree today is that, medical expenses in India are many times higher than what they were just 5 years go. This limit of 15,000 rupees hasn’t changed since early 2000’s and sadly this limit again was left untouched.

The Good – From the Indian Union Budget 2015

The following are some “Good” things from our budget, from a common man standpoint.
 Hike in Transportation Allowance
The government has increased the transportation allowance from Rs. 800 per month to Rs. 1,600 per month. This basically means that Rs. 19,200/- every year from your income can be exempt from income taxes to cover for your transportation related expenses.
 Hike in Limits – For Medical Insurance

The Section 80D that allows us to offset the health insurance premiums we pay for ourselves and our family has been generously revised. For normal people the limit has been hiked from Rs. 15,000 to Rs. 25,000. For Senior Citizens, the same has been hiked from Rs. 20,000 to Rs. 30,000.

For Very Senior Citizens (Aged 80 and above) who usually are not covered by health insurance, a deduction of Rs. 30,000 toward expenditure incurred on their medical treatment is also proposed.

The Great – From the Indian Union Budget 2015

The following are some “Great” things from our Indian Union Budget 2015 from an Individual Tax Payer stand point.

Hike in Section 80DD and Section 80U Limits
Both Sections 80DD and 80U aimed at providing additional tax benefits for people who had disabled dependents or for tax payers who were disabled themselves. The government has proposed to increase the tax exemption by Rs. 25,000/- under both sections.

The limits were either Rs. 50,000 or Rs. 1 lakh earlier. Now, they are Rs. 75,000 or Rs. 1.25 lakhs.
 Hike in Section 80DDB Limits for Very Senior Citizens

Section 80DDB Allows tax exemptions on treatment for certain specified diseases. The limits presently are Rs. 40,000 for regular citizens and Rs. 60,000 for Senior citizens (or the actual amount – whichever is lower).For Very Senior Citizens, this limit has been enhanced to up to Rs. 80,000.

The Awesome – From the Indian Union Budget 2015

The following are some “Awesome” Things from this year’s budget from a common man standpoint.
 Hike in Section 80CCD Limits – For NPS 
One of the points mentioned by our Finance Minister during his speech yesterday was the fact that India lacks a social security net to protect our citizens in their old age. The National Pension Scheme is an excellent scheme which can be very useful for individuals to accumulate a corpus for their retirement life. In order to motivate them to save more under this NPS Scheme, the upper limit for investments in NPS Scheme under Section 80CCD is hiked to 1.5 lakhs per year.
 Affordable Insurance and Senior Citizen Welfare Schemes 
The government is proposing to make Insurance Affordable and give additional welfare schemes for Senior Citizens. They include: 
  • Pradhan Mantri Suraksha Bima Yojana which will give an accidental death coverage of 2 lakhs for just Rs. 12 per year
  • Atal Pension Yojana to provde pension (depending on contributions made and the period of contribution) to individuals who subscribe to this scheme. The government will contribute 50% of the beneficiaries premium paid (capped at Rs. 1000 per person per year) for the next 5 years for all new accounts opened before 31st December 2015.
  • Pradhan Mantri Jeevan Jyoti Bima Yojana to cover both natural and accidental death risk of Rs. 1 lakh to everyone in the 18-50 year age group at just Rs. 330 per year
  • A senior citizen welfare fund is proposed to be set up by using the unclaimed funds of Rs. 3000 crores in PPF and Rs. 6000 crores in EPF.
 Monetization of Gold 
Gold has been a preferred avenue of Investment for Indians but is not very liquid. The only option for us is to sell the gold in a jewelry shop or pledge it with a bank. If we just keep the gold with us, it just remains idle.

The government is proposing a Gold Monetization Scheme that will also low investors who deposit their gold under this scheme, to earn an interest in their metal accounts. A Sovereign Gold Bold scheme will be developed which will be an alternate to buying physical gold.

On top of this the government is planning to mint its own gold coins that will have the Ashoka Chakra embossed on the face. This will reduce the import of coins minted from foreign countries.
 Wealth Tax Abolished

If you are someone who has tried to calculate his/her wealth tax liability by totaling up all our assets, you will agree with me that this was a pain. The government has entirely abolished this wealth tax system bringing relief to a lot of tax payers.

If you are curious and want to know how to calculate your wealth tax liability, check out this article on Calculating Wealth Tax.
 Taxing the Super Rich
The Super Rich (Defined as individuals whose income is more than 1 crore rupees) will be taxed an additional 2%. This will boost the governments income and in future can result in perks for the middle-class tax payers.
 Black Money and Tax Evasion Restrictions
One of the things that people in India don’t worry about is the fact that, they can get away with evading tax or stashing away black money. The government is proposing to bring in laws that heavily punish both tax evasion and keeping of black money. Some of the key points of this new law include
  • Evasion of Tax with regards to foreign assets punishable with jail time of up to 10 years and a penalty of up to 300% of tax evaded. Also, the offender cannot approach the settlement court.
  • Non Filing of Taxes or Filing of Taxes with incorrect/inadequate information punishable with jail time of up to 7 years.
  • Undisclosed income on foreign assets to be taxed at maximum marginal rate
  • Mandatory filing of taxes with regards to foreign assets (even if the assets aren’t earning any taxable income)
  • Individuals, entities, banks and financial institutions that facilitate tax evasion or black money will also be liable for prosecution and penalties
  • Benami Transactions Bill to curb domestic black money will be introduced
  • Cash payment of above Rs. 20,000 for purchase of immovable property – prohibited
  • PAN Number mandatory for all property transactions exceeding Rs. 1 lakh
Some Last Words

As you can see, the Awesome section of this article has quite a few entries. Though I am disappointed that many of my expectations with regards to individual tax payers were left untouched, the new/unexpected benefits are nice to see. It is obvious that the government does not want to offer excessive sops and let the fiscal deficit blow out of control. Hopefully we can control our fiscal deficit and next year the tax slabs and benefits for the common man tax payer are increased…


  1. Anand,
    This Budget and interim budget presented in July last, have together provided Rs. 2L tax exempt savings to citizens. The interim budget had raised 80C limit by 50%, to Rs. 1.5L, so it would be unrealistic to expect another raise again. I would say the next raise in limit may come in 2017, the year before election. On the other hand, this budget did provide a Rs. 50K tax exemption to NPS contribution. .
    So, compared to FY2013-14, one could avail of tax exempt savings of Rs 2L from FY2015-16.

    NOTE: In your "Awesome" section you mention NPS limit under Sec 80CCD of Rs.1.5L. Is that accurate?

    - Harsha

    1. Harsha - There is still some ambiguity on this Section 80CCD and i will be updating that part once more clarity is available


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