Your Complete Guide to Indian Income Tax and Retiring as a Crorepati - 2nd Edition

The 2nd edition of my book "Your Complete Guide to Indian Income Tax & Retiring as a Crorepati" is now ready.

What's New in this Year’s Edition?

The year 2014 was monumental for many reasons. Firstly, the new BJP Government led by Mr. Narendra Modi took charge under immense expectations from the billion plus population of our country. Secondly, this book, my first ever adventure in writing was successful and as a book on India Income Tax, this book needs to be updated every year, as the tax laws in the country change.

This year, on February 28^th 2015, our Finance Minister presented the Indian Union Budget. 

Expectations, as always were sky high and there are quite a few updates on Individual/Personal Taxation laws. In this edition, you will be able to review all the modifications to personal tax laws.

Apart from the modifications in personal tax laws, you will also be able to learn about the new Sukanya Samriddhi Savings Scheme that can help you invest for your daughters future. You will also be able to find out the best fixed deposit interest rates (both regular and tax saving) plus the latest list of recommended mutual funds that you can invest now.

Hope you find this edition useful.

Best Wishes

Check out the page - Books by this Blog Author to find out about how to buy this book. 

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 31^st 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…

Highlights and Analysis of the Indian Union Budget 2015

On the back of a 9 month bull-run and an energized economy which was becoming more popular among foreign investors, the Finance Minister of India Mr. Jaitley had the enviable task of presenting the Indian Union Budget for the financial year 2015-16. With all opposition parties and expert critics closely watching his every move, this budget had a ton of expectations. A few days back I had written an article titled “My Expectations from theIndian Union Budget 2015”.

With the budget presented in the parliament (and to the public) its high time we stopped talking about expectations and get into the details of the “Actuals” from the budget.

Before We Begin: Disclaimer

This article is purely a representation of the facts from the Indian Union Budget 2015. The views in this article are entirely mine and do not endorse/condone/criticize/support any political party whatsoever.

Overall Revenues and Expenditures – Budget 2015-16

In this coming financial year, the finance minister has estimated that the overall revenue of the government will increase by about 14.49 lakh crores. This is about 15.8% higher than the government’s revenue from the previous financial year (2014-15). The Overall expenditure is expected to be around 17.7 lakh crores.

It is also estimated that the share given to the states would go up by a massive 50% in the coming fiscal year. This means, state governments will get about 5.24 lakh crores in funds as against the 3.48 lakh crores they got in 2014-15.

One key point worth mentioning here is that, our defense spending alone would amount to 2.47 lakh crores which is considerably higher than last fiscal year.

The following are some key highlights of our Budget.

Highlight No. 1: Focus on Economic Growth and Infrastructure Development Across India

If one thing was clear from this years budget, it was the fact that the government is serious about bringing our economic growth back on track as against the sluggish pace at which we were growing over the past decade or so. Some of the key highlights of this budget that would aid Economic Growth and Infrastructure Development across India are:

• Public Private Partnerships (PPP) projects proposed to kick-start numerous infra projects totaling to about 70,000 crore rupees
• A National Investment Infrastructure Fund is proposed to be set up
• Tax Free Infra Bonds are proposed to fund new rail, road and irrigation projects in our country
• Approximately 1 lakh kms of roads expected to be built
• 5 ultra mega power projects with capacity of 4000 MW each proposed
• Green Energy Sources (Renewable Energy) projects get a big push. About 1.75 lakh MW Green Energy planned to be generated this year of which 1 lakh MW from Solar 60,000 MW from Wind 10,000 MW from bio-mass and 5000 MW from small hydro power plants
• Expected Economic Growth In India to be around 8.1% to 8.5%
• Corporate Tax for companies will be reduced from 30% to 25% over the next 4 years
• To enhance the start of and doing business in India, an expert committee would be set up. The aim is to bring India from its 142^nd Rank (among 189) to the top 50 countries in the world to start and run businesses.
• A comprehensive bankruptcy code which is at par with global standards will be established

My Views:
It is good to see that the government is investing heavily in improving our infrastructure facilities. It is also good to see that a major focus has been placed on renewable/green energy sources. Reduction in Corporate Taxes and improvement in the ease of doing business aspect can very well help make the prime ministers vision of “Make in India” a reality.

Highlight No. 2: Agriculture and Rural Development

Everyone knows that Agriculture is the backbone of the Indian economy but still the farmer is languishing in poverty in spite of strong economic growth in our country. In order to help the farmers, boost agriculture and rural economy the budget proposes the following:

• Rs. 5,300 crores set aside to support micro irrigation
• 1 lakh crore set aside under various rural development schemes
• Rs. 8.5 lakh crores set aside toward lending agriculture credit
• A Unified National Agriculture Market is proposed to be set up to give the farmer earn a fair chance to sell his produce.
• A Post Graduate Institute of Horticulture Research & Education proposed to be set up in Amritsar.

My Views: As of now, the end consumer pays an exorbitant price for most produce while the farmer gets only a miniscule portion of it. For ex: Though the cost of good quality rice has exceed Rs. 30 per kilogram, the amount that the farmer who is struggling to produce that rice is less than 25% of it. The remaining 75% gets lost in the shuffle between the farmer and bringing this rice to the consumer (you and me). This National Agri Market will be a welcome boon to the farmer to earn a decent price for his produce.

On top of this, access to credit has been one of the key troubling areas for farmers especially during seasons where monsoon/draught plays spoil sport. The proposed funding of 8.5 lakh crore towards agricultural lending can help our farmers get back on their feet

Highlight No. 3: Focus on Fiscal Consolidation

• The Government is expected to stick to its fiscal deficit target of 4.1% of the country’s GDP. By the financial year 2016-17 the fiscal deficit is expected to go down to 3.5% and by 2017-18 the government plans to reduce the fiscal deficit to 3% of our GDP.
• The Government is also planning to raise about 41,000 crore rupees by selling its stake from various government owned public sector companies.
• A Gold Monetization Scheme proposed to keep our Current Account Deficit at around the 1% mark.
• Inflation Rate expected to be around the 5%-6% range

My Views:With the governmental spending being much higher than the proposed revenue, it is going to be difficult for the government to meet its fiscal deficit target for this year. The good news is that our retail inflation has come down considerably but this is not entirely due to the governments steps. A big chunk of this reduction in retail inflation is due to international crude oil prices coming down as well as reduction in commodity prices. If crude prices start hiking up again, then it would be really difficult to stick to the proposed retail inflation % range.

With numerous infrastructure projects already “In Progress”, it would be a tough act for our government to maintain balance between the existing projects and new proposed launches. With focus on renewable energy, our power deficit may be fixed once and for all but this is a long term vision. Renewable energy will not be up and running like traditional sources. With the proposed launch of 4 ultra mega power plants, the deficit can be curbed but these power plans will need undisturbed access to Coal which may be a problem. How can a power plant generate power if it cant get enough coal? Lets hope that our government has plans to address this situation and keep our infrastructure growth on its feet running rather than slow down…

Highlight No. 4: Impact on End Consumers

Coming to the crucial part of the budget – the one that impacts the common working class population of our country.

The government is proposing to increase the present service tax + education cesses rate from 12.36% to 14%. This is definitely bad news for consumers because – almost every service comes under the ambit of service tax and we the consumer would have to shell out this additional 1.64% on those services.

Excise duty on Aerated Drinks, Cigarettes and Tobacco has been hiked once again which will make it even more costlier to people who use them.

Customs Import Duty on 22 items have been reduced in order to give a push to actually manufacture many products in India rather than just import the end product for consumption.

My Views:This hike in Service Tax is going to impact us on a daily basis. Almost everything is going to be costlier by about 1.6%. The government has plans to spend humongous amounts on infrastructure and development projects and hiking taxes is obviously the easiest way to increase the revenue. However, I was expecting a simplified GST type system which will be not on transparent but also easy to comprehend and implement.

The good news though is the hike in excise duty on tobacco products and aerated drinks. With international cola makers setting up shop in our country and pampering our sweet tooth with sugar loaded drinks which are making us fat, this hike in excise duty will actually help us reduce this bad habit. No comments on tobacco excise duty hike because – this is one of the standard practices for every government. This not only helps the government make some extra income but also makes smoking & using tobacco products that much costly. This will help people quit this bad had and refrain people from taking up this habit owing to its costliness.

Focus on Manufacturing the product in India by reducing import duty on raw materials rather than importing the finished goods is a good way to boost our manufacturing as well as reduce our Current Account Deficit.

Some Last Words

Some might say that this budget has been disappointing. Though I am slightly disappointed with some of the aspects of this budget (like leaving the tax slabs as is, or increase in service tax etc) I am also glad to see the hike in infrastructure and agricultural spending. Hike in Defense will also improve our capabilities to defend our motherland. If the proposed fiscal deficit, economic growth and inflation numbers can be achieved, I would call this budget a Success…

Before we wrap up, you may be wondering why I haven’t covered anything related to individual income tax. That is because, this article has already exceeded 4+ pages and I don’t want to add on more. Individual Income Tax will be covered in a separate article.