Sunday, February 22, 2015

My Expectations from the Indian Union Budget 2015

The Union Budget is due in a few weeks and people’s expectations from our Finance Minister are at a high. The previous budget wasn’t a full-fledged one and hence the finance minister promised a lot of reforms which will be due this year.

Once the budget is released, we will review it in great detail but for now, I just want to share with you guys, what my expectations are from this budget…

Before We Begin: The Union Budget contains numerous sections but, this post is purely from a personal finance perspective.

Expectation No. 1: Revised Individual Income Tax Limits

Though the finance minister slightly increased the taxation limits (slabs) last year, I feel there is still some more scope for improvement. For Ex:

  • Up to 5 Lakhs – NIL
  • 5 Lakhs to 10 Lakhs – 10%
  • 10 Lakhs to 15 Lakhs – 20%
  • Above 15 Lakhs – 30%
  • Above 50 Lakhs – Extra 5% Tax

Expectation No. 2: Revised Expenditure & Exemption Limits

The Indian Tax Laws allow us to offset many of our expenditures to reduce our tax liability. For ex: Medical Bills, Transportation Expenses etc. However the limits for these have not been revised for over a decade. In fact, the numbers are the same from the time I started working in 2004.

The Revised Limits could be:

  • Transportation Allowance: 15,000 (Existing 8,000)
  • Medical Allowance: Rs. 25,000 (Existing 15,000)
  • Section 80D - Medical Insurance: Rs. 20,000 (Existing 15,000)
  • Section 80DD - Medical Treatment of Physically Disabled Dependent: Rs. 1 lakh (Existing 50,000)

Expectation No. 3: Revised Investment and Savings Limits

Section 80C and Section 80CCG are two sections that allow tax payers to invest a portion of their income for their future and avail tax exemption. Though the Finance Minister revised the Section 80C limit and increased it by 50,000 rupees last year, I feel this can still be hiked to stay tuned with the increase in cost of living in our country.

  • Section 80C: 3 Lakhs
  • Section 80CCG (Rajiv Gandhi Equity Savings Scheme): Rs. 1 Lakh (For People whose Incomes do not Exceed Rs. 15 lakhs in a year)

Expectation No. 4: Revised Housing Benefits

The Tax Laws allow us to offset a portion of our income if we have purchased our house on a home loan. I would expect the following amendments

  • Increase the Interest Repayment Exemption Component to 5 Lakhs (Existing 2 Lakhs) for the first home
  • No Interest Repayment Exemption from the second home onwards (If Self Occupied or Empty)
  • Interest Repayment Exemption of 2.5 Lakhs from the second home onwards (If Rented Out)

Existing laws only distinguish as self-occupied and rented houses. But, I feel higher benefits must be offer to first time/first home buyers rather than folks who invest their surplus to generate a second income. Yes, if they are filing their taxes by including the rental income, then they should get the exemption but that shouldn’t be as much as the first time home buyer. 

Housing in India is becoming unaffordable with every passing year. This additional tax benefit will bring much needed breathing room for the hard working middle class families who need the help.

Expectation No. 5: Focus on Pension Schemes and Retirement for Citizens

India is one country where almost 80% or more people retire with little to no corpus. EPF is the only saving grace and even that gets compromised these days with people withdrawing their PF Every time they switch jobs. With the Universal PF Account Numbers, this can be curbed but still, I feel the pension schemes need further pushing.

The National Pension Scheme is an excellent option and is by far the cheapest pension product available in the market right now. But, it is not being marketed as aggressively as it should be (obviously due to lower profit margins for the folks who are supposed to be selling it). Maybe the government can add in a sub-section in 80C for NPS (Maybe 1 lakh) or even add a brand new category that gives exemption only for NPS Investments (At least 50,000 in a year or more)

There have been a few articles on NPS in this blog already. If you havent considered NPS as an investment, you should check it out...

So, what are your expectations from the budget? Sound off in the comments section. 

Lets hope our Finance Minister can satisfy our expectations...

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