Majority of Indians now feel a sense of contentment post the budget of 2014-15, as it touched various aspects of the country's financial health with emphasis on building infrastructure, creating jobs and promoting entrepreneurship while taming inflation. The most watched space by most individuals in an annual budget speech are tax exemptions, the way their personal finance planning would be affected and which consumer products would get cheaper or expensive.
Increase in Income Tax Exemption limit:
A welcome move for crores of tax payers in the country was the finance minister's announcement of an increase in personal income tax exemption limit by Rs. 50,000 across all categories. Individual tax payers below the age of 60 years earning an amount up to Rs. 2.5 Lakhs would now be exempted from paying income tax compared to earlier limit of Rs. 2 Lakhs. In case of senior citizens above the age of 60 years, the exemption limit gets increased to Rs. 3 Lakhs; an increase from the existing Rs. 2.5 Lakhs. There has been however no change in the income tax slab, surcharge rate and education cess for either corporate, individual of HUFs.
Hike in Tax Exemption Limit under Section 80c to boosts retail banking products:
In an attempt to boost household savings, the finance minster has announced an increase in exemption limit for investments under Section 80C of the income tax Act. Tax exemption limit under 80C has been raised to Rs 1.5 lakh from the current level of Rs. 1 Lakh. With an increase in the exemption limit, the quantum of investment under various instruments covered under Section 80 C like home loans, insurance premium, public provident fund, employee provident fund, National Savings Certificates and ELSS are likely to increase in the near future. This would be a good news for both banks and insurance companies.
Increase in Investment limit of PPF:
With the increase in Public Provident Fund or PPF investment limit from Rs.1 Lakh to Rs 1.5 Lakhs, financial experts feel that investors will now start looking at PPF investment as a standalone investment product and not just a part of Section 80c tax savings plan.
Announcement of New Personal Finance Instruments:
The budget has announced a series of new investment products that can be used for personal finance. The finance ministry has reintroduced the much popular' Patra' which is likely to increase both planned and unplanned savings. A special small saving scheme focusing on education and marriage of the girl child has been introduced. The finance ministry has also announced its plans to have a single demat account linking all financial transactions making it a lot easier for investors to manage their investment bouquet.
Possible Post Budget Impacts on Financial Instruments:
- Home loans: With announcement of new schemes for rural and affordable housing, the number of people seeking home loans is likely to increase in the near future. The increase in tax exemption for interest paid on self occupied house under a home loan from Rs 1.5 to Rs 2 Lakhs is a welcome move.
- Non equity mutual funds: For people investing in mutual funds that come under non equity categories, the budget does not offer good news. The finance minister announced an increase in long-term capital gains tax on non-equity mutual funds from 10% to 20%.The period of time qualifying as long term has also been increased to 36 months from the current period of 12 months. With the announcement public interest in non equity mutual funds like FMPs, gold funds and various international funds is likely to reduce. This may mean increased interest in traditional fixed deposit plans and other financial instruments offering tax concessions under section 80c.
- Overall impact on day to day spending: Apart from personal finance, the budget is likely to impact the day to day financial spending of the common man. Electronics, mobile phones, LED and LCD TVs less than 19 inches will get cheaper along with shoes between Rs. 500 and Rs.1000. Smokers have been given yet another reason to quit as excise duty has been doubled on tobacco products.
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