The Finance Minister had a daunting task of drawing a road map for higher growth with fiscal prudence and lower inflation with manageable current deficit. Accepting the challenge of maintaining the fiscal deficit at 4.1% for the financial year 2014-15, a budgetary framework has been cast - Amendments made on the personal tax front reflect the overall objective of fiscal prudence.
FULL COVERAGE:Union Budget
No changes in tax rates have been made to keep all happy. Stability has been maintained by keeping the individual tax rates constant. However, recognizing the need to provide some relief to the small and marginal tax payers who are the most hit by inflation, there have been a few reprieves:
1. The personal income tax exemption limit has been increased by Rs 50,000 from Rs 2 Lakh to Rs 2.5 Lakh in case of individual tax payers who are below the age of 60 years. A corresponding increase has been made in the case of senior citizens with an increased exemption limit from Rs 2.5 lakh to Rs 3 lakh.
2. The economy has seen a significant reduction in domestic savings. To encourage households to generate much needed savings, the budget has proposed the limit under Section 80C to be raised from Rs 1 lakh to Rs 1.5 lakh to encourage domestic investment in long term savings. Consequentially, for those wishing to save more under Public Provident Fund (PPF), the investment limit has been increased from Rs 1 Lakh to Rs 1.5 Lakh.
3. Rising cost of financing a house has been concern for the common people. To reduce this burden, the budget has proposed to increase the deduction limit on account of interest on loan in respect of self-occupied house property from Rs 1.5 lakh to R. 2 lakh.
It is understood that these reliefs will provide some support to the overall objective of the Budget.
The need to widen the tax base to mobilise additional resources and cap leakage in revenue is the need of the hour. Further steps have been taken towards this end -
At present, the capital gains arising on transfer of units of Mutual Funds, other than equity oriented funds which are held for more than a year may be taxed at a concessional rate of 10% at the option of the individual. Alternatively, he can choose to be taxed at 20% with indexation benefit. The FM has raised a concern that this allows tax arbitrage opportunity because direct investments in banks and other debt instruments attract a higher rate of tax. With a view to remove this tax arbitrage, the Finance Bill has proposed to increase tax rate on long term capital gains from 10 percent to 20 percent on transfer of units of such funds. Further, the period of holding to qualify as long-term in respect of such units has been extended from 12 months to 36 months. As a result, instruments like fixed maturity plans and debt mutual funds may lose their sheen.
Tax at 2% is proposed to be deducted by insurance companies on the sum paid under a life insurance policy, if the aggregate sum paid including bonus in a financial year to a tax payer exceeds Rs 1 lakh. The provision will be applicable for only those receipts from life insurance policies which are not exempt from tax. This is seen as a move to implement a mechanism to track untaxed insurance proceeds. Small taxpayers have however been spared the tediousness of such TDS.
In the current scenario, advance amounts received during ongoing negotiations for sale of a capital asset are not taxed if the negotiations fall through and the amounts are forfeited - however, upon sale of such assets, the advance amount is reduced from the cost of acquisition. This deferment of taxation will no longer be possible. An amendment is proposed so as to tax any sum of money which is received as an advance for transfer of a capital asset, if such sum is forfeited and the negotiations do not result in transfer of such capital asset.
In his budget speech, the FM has committed to provide a stable and predictable taxation regime. In this regard, the facility of applying to Authorities for Advance Ruling (AAR) for a confirmed tax position has been extended to resident taxpayers in respect of their income tax liability. The facility will be available only if the prescribed threshold is exceeded. Additional benches of the AAR will be set up. Additional Aykar Seva Kendras (ASK) would be instituted to promote excellence in service delivery. Following the recommendations of the "Tax Administration Reform Commission" (TARC), tax payers were hoping for an overhaul of tax administration. Those announced are only some steps towards this. 'Out of budget' measures are also called for.
With a commitment to social security and welfare of employees in the organized sector, the Government is notifying minimum pension of Rs 1,000 per month to all members of Employee Pension Scheme. Further, increase in mandatory wage ceiling of subscription to Employee Pension Scheme from Rs 6,500 to Rs 15,000 has been made. Varishtha Pension Bima Yojana (VPBY), a pension scheme for senior citizens will be revived for one year starting from 15 August, 2014 for citizens aged 60 years and above.
The Budget has incorporated various measures for urbanizing India with 100 small cities as satellite towns and the Government is committed to housing for all by 2020 among various other visionary measures.
Being the maiden budget of this Government, drafted within a few weeks, this budget is a mode to give direction stressing on the 5 Ts - Talent, Tradition, Tourism, Trade and Technology - a term coined by the PM to build Brand India.
Tapati Ghose is Partner and Vijay Bharech is Deputy Manager Deloitte Haskins & Sells LLP