Budget 2014 was a big event this year as the expectations from BJP
govt was very high. Here are some of the income tax rules which were
changed int his budget and impact a common man directly.
1. Income Tax Exemption Increased from 2 lacs to 2.5 lacs
The basic exemption limit was raised by Rs 50,000 in this budget and now the new limit is Rs 2.5 lacs . So there is no tax to be paid upto income of Rs 2.5 lacs. For senior citizens, the new limit will be Rs 3 lacs. So the new tax slabs looks something like this
3% education cess is extra on income tax
2. 80C limit raised from 1 lacs to 1.5 lacs
This was a big relief for most of the people, as the old limit of Rs 1 lac in 80C was not enough for most of the people. There are too many things like EPF, PPF, Home Loan Principle amount, tuition fees, Life Insurance Premium, Tax Saving Mutual Funds and Tax saving FD and many more things, which gets 80C exemption.
Now with this exemption increase to 1.5 lacs, more motivation will be there for people to utilize this 80C limit. So if a person earns Rs 4 lacs, he/she can invest upto Rs 1.5 lacs in 80C, which lowers the taxable income to 2.5 lacs , which does not attract any income tax. So in best case, a person do not have to pay income tax upto Rs 4 lacs income with help of 80C investments done.
3. PPF limit raised from 1 lacs to 1.5 lacs
The limit for PPF investments was increase from 1 lacs to 1.5 lacs. This is going to be a great news for PPF fans and especially those who are investing in PPF in their children names, as the overall limit would increase for their family.
4. Home Loan Interest exemption raised from 1.5 lacs to 2 lacs
This was again a big relief for salaried class, as a lot of people who have taken home loan pay much more than 1.5 lacs of interest per year. With the increase of limit from 1.5 lacs to 2 lacs, the extra saving is of tax on Rs 50,000 , which turns out to be around Rs 15,000 for those who are in 30% tax slab. Note that this is only applicable for self occupied house taken on home loan.
5. Capital Gains Tax on Debt funds raised from 10% to 20%
The capital gains tax on debt funds has been raised from 10% to 20% and the minimum holding period to get benefit has been raised from 12 months to 36 months. So what happened was that earlier, people in 20%-30% tax slab rate used to invest in debt fund for 12 months and got it taxed at 10%, which was a great alternative to fixed deposits (where you pay 30% tax , if you are in higher tax slab) . But now this cant be done . Those who are interest to understand this part, please read this analysis on Deepak Shenoy Blog.
Click Here to Download the Income Tax Calculator
1. Income Tax Exemption Increased from 2 lacs to 2.5 lacs
The basic exemption limit was raised by Rs 50,000 in this budget and now the new limit is Rs 2.5 lacs . So there is no tax to be paid upto income of Rs 2.5 lacs. For senior citizens, the new limit will be Rs 3 lacs. So the new tax slabs looks something like this
This was a big relief for most of the people, as the old limit of Rs 1 lac in 80C was not enough for most of the people. There are too many things like EPF, PPF, Home Loan Principle amount, tuition fees, Life Insurance Premium, Tax Saving Mutual Funds and Tax saving FD and many more things, which gets 80C exemption.
Now with this exemption increase to 1.5 lacs, more motivation will be there for people to utilize this 80C limit. So if a person earns Rs 4 lacs, he/she can invest upto Rs 1.5 lacs in 80C, which lowers the taxable income to 2.5 lacs , which does not attract any income tax. So in best case, a person do not have to pay income tax upto Rs 4 lacs income with help of 80C investments done.
3. PPF limit raised from 1 lacs to 1.5 lacs
The limit for PPF investments was increase from 1 lacs to 1.5 lacs. This is going to be a great news for PPF fans and especially those who are investing in PPF in their children names, as the overall limit would increase for their family.
4. Home Loan Interest exemption raised from 1.5 lacs to 2 lacs
This was again a big relief for salaried class, as a lot of people who have taken home loan pay much more than 1.5 lacs of interest per year. With the increase of limit from 1.5 lacs to 2 lacs, the extra saving is of tax on Rs 50,000 , which turns out to be around Rs 15,000 for those who are in 30% tax slab. Note that this is only applicable for self occupied house taken on home loan.
5. Capital Gains Tax on Debt funds raised from 10% to 20%
The capital gains tax on debt funds has been raised from 10% to 20% and the minimum holding period to get benefit has been raised from 12 months to 36 months. So what happened was that earlier, people in 20%-30% tax slab rate used to invest in debt fund for 12 months and got it taxed at 10%, which was a great alternative to fixed deposits (where you pay 30% tax , if you are in higher tax slab) . But now this cant be done . Those who are interest to understand this part, please read this analysis on Deepak Shenoy Blog.
Then vs Now – An example calculation of a person earning Rs 10 lacs
Below I have given an example of a person who earns Rs 10 lacs, and takes full benefit under 80C , Home loan Interest and other basic exemptions like HRA, Medical Bills, Medical Insurance premium etc and compared his situation from past year rules vs the new rules which came in new budget. It has been seen that he can save approximmately Rs 30,000 additional tax. Have a look belowDownload the Income Tax Calculator
I have created an excel calculator which you can use for calculating your new income tax and also compare with past year and see how much saving you will make with new rules. Download the income tax calculator below. If you want to get access to many more calculators, be part of our workshops in 6 citiesClick Here to Download the Income Tax Calculator
Some Other Changes and Points from Budget
- There is a proposal for introducing a single demat account for all the financial products
- The EPFO will launch a unified EPF account, which will be a single account and there wont be headache to transfer or merge them every-time you change the job.
- There will be uniform KYC across all financial institutions so that you don’t have to update your KYC at all the places
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