Spend, Save and Invest Smartly

Expectations from Union Budget 2015-16





The budget season is here and it is time to expect a great year ahead. The budget after all comes only once a year.
Time to bring out your wish list. Hope is a basic emotion and you have it in plenty for the Union Budget 2015-16.

Expectations from the salaried

Have a look at the current income tax slabs :
Individual Tax Payers up to the age of 60 years: (Male/Female):

Annual Income (INR) Tax Rate
0 - 2,50,000 Nil
2,50,001-5,00,000 10 %
5,00,001-10,00,000 20 %
Above 10,00,000 30 %

An increase in the basic tax exemption slab from INR 2,50,000 to INR 3,00,000 would be great as a starter. This would mean more money in your hands .Greater savings …More shopping…More investments.

Imagine a tax slab looking like this :

Annual Income (INR) Tax Rate
0 - 3,00,000 Nil
3,00,001-10,00,000 10 %
10,00,001-20,00,000 20 %
Above 20,00,000 30 %

What about Section 80 C

You currently enjoy a combined deduction under Section 80 C + Section 80 CCC + Section 80 CCD up to INR 1.5 Lakhs per year on select financial instruments. Currently the payments you make towards an annuity plan or a pension plan enjoy tax deductions under Section 80 CCC of the income tax act. The amount you invest in the NPS is eligible for a tax deduction under Section 80 CCD. Section 80 C+ Section 80 CCC+ Section 80 CCD = INR 1.5 Lakhs. Imagine a deduction under Section 80 C of the income tax act up to INR 2 Lakhs per year on select financial instruments. The entire deduction of INR 2 Lakhs per year is for Section 80 C only .Section 80 CCC and Section 80 CCD can enjoy a separate deduction.

5 year bank fixed deposit

Let us take a look at the 5 year bank fixed deposit. You would invest more money in the 5 year bank fixed deposit to avail a higher deduction which means you save more. You cannot touch this money for 5 years and this would be a good forced saving. Senior citizens are known to be good savers and could invest more money in tax saving fixed deposits to avail a higher deduction.

Senior citizens saving scheme

Senior citizens (above 60 years) could invest a higher amount of INR 2 Lakhs per year in this scheme and avail a tax deduction under Section 80 C.

What about PPF, National savings certificate and post office saving schemes?

These tax saving instruments would enjoy a higher deduction and encourage you to make a long term saving. The lock in of a PPF is 15 years and National savings certificate have a lock in of 5 years and 10 years. This encourages long term savings and you save more.

The boom in the equity markets

ELSS is a very aggressive instrument which has over 80% in equities. It also enjoys benefits under Section 80 C. An increase in the deductions under Section 80 C from INR 1.5 Lakhs to INR 2 Lakhs per year means good news for aggressive investors. Stock markets have been rising rapidly in the last year and this is good news for aggressive investors. All fence sitters are jumping in. You invest more money into the ELSS and this is a twin benefit. You enjoy a higher deduction up to INR 2 Lakhs per year and since ELSS has a lock in of 3 years you stay invested for the long term.

What about Pension funds?

Currently the payments you make towards an annuity plan or a pension plan enjoy tax deductions under Section 80 CCC of the income tax act. The amount you invest in the NPS is eligible for a tax deduction under Section 80 CCD.
Currently your combined investment in :
Section 80 C + Section 80 CCC + Section 80 CCD = INR 1.5 Lakhs. It would be a great idea to have a separate deduction of INR 50,000 per year for the payments you make towards annuity and pension plans. You could have: Section 80 CCC + Section 80 CCD = INR 50,000.

What about the premiums you pay for a health insurance plan?

Cost of medical treatment is rising. Hospitalization is a very expensive affair. You have availed a family floater plan to cover your family. You enjoy a deduction under Section 80 D on the premium you pay for a health plan for your family, spouse and children up to INR 15,000 per year. This tax deduction is a ridiculously small amount compared to the premium amounts you would have to pay for a family floater plan. It would be great if the tax deduction under Section 80 D could be raised to INR 30,000 per year on the premiums you pay for the family floater health plan covering you ,your spouse and family. If you take a health plan for your parents who are senior citizens you would get a tax deduction of INR 20,000 per year on the premiums you pay for their health plan. Senior citizens have very high medical expenses. The premiums you pay for a health plan for your parents who are senior citizens can be several thousand rupees. It would be great if the tax deduction under Section 80 D on the premium payments you make for your parents who are senior citizens can be raised to INR 50,000 per year.

Repaying the education loan?

True growth and progress can be achieved only if the youth of the Nation are educated. An education loan goes a long way in achieving the goal of educating India’s young. You get a deduction under Section 80 E of the income tax act on the interest you pay on your education loan. You can deduct the entire interest you pay on the education loan towards the Section 80 E deductions. (There is no cap on the interest deducted towards an education loan). At present there is no income tax exemption or deduction you enjoy on the repayment of the principal amounts on your education loan. A suggestion : It would be great if there is a tax deduction on at least a part of the principal amounts you repay on your education loan under Section 80 E. This would mean you pay back the education loan very fast.

What about taxation you earn on the interest portions of your savings bank account?

You have a tax deduction under Section 80 TTA on the interest you earn from your savings bank account. You get a deduction of INR 10000 per year on the interest you receive from your savings bank account made with a bank. If this deduction under Section 80 TTA could be increased to INR 20,000 per year on the interest you get from a savings bank account it could encourage more savings in SB accounts. This encourages small savings.

How this budget can help you get that dream home?

You have waited too long for that dream home. Property prices are soaring. Every time you reach for that dream home it slips away. We had mentioned earlier in this article that it would be great if the Section 80 C deductions were increased from INR 1.5 Lakhs to INR 2 Lakhs per year. You currently get deductions on the EMI (principal amounts) you repay on your home loan up to INR 1.5 Lakhs per year under Section 80 C of the income tax act. If the income tax deductions under Section 80 C was increased to INR 2 Lakhs per year then you would get a higher tax deduction on the EMI (principal amounts) you repay on the home loan. You get a deduction of INR 2 Lakhs per year on the interest portion (EMI Interest) you repay on your home loan under Section 24. It would be good if the exemption limit under Section 24 on the EMI (Interest) repaid on the home loan could be raised to INR 2.5 Lakhs per year from the current INR 2 Lakhs per year. You have to pay very high EMI (Interest) in the initial years of repayment on your home loan. If you get a higher deduction of INR 2.5 Lakhs per year under Section 24 on the EMI (interest) you repay on the home loan you will be able to repay the home loan faster. Your dream home will arrive soon. Thinking of the keys.

You need a higher exemption

Medical reimbursement too less :
You have to submit medical bills to claim this amount. You have to submit your medical bills and claim a reimbursement up to INR 15,000 a year. Medical costs are soaring and this is peanuts. A medical reimbursement of at least INR 30,000 a year is the least you should expect.

Transport allowance not enough :
You get this allowance for your travel to office and back. You do not have to pay tax on this amount as long as the travel allowance given to you is up to INR 800 a month. This amount is too less for travelling in this costly age. A transport allowance of INR 3,000 a month would be more in line with the times.

Too less to eat :
You can use food coupons to buy meals. Your food coupons are tax exempt up to INR 50 per meal .The meal must be had in the office working hours. Food costs are rising these days. Inflation is soaring. Your food coupons need to be tax exempt up to INR 100 per meal keeping in line with the times.

Children’s education allowance :
You are given this allowance to pay for the education of your child. You are exempted to tax up to INR 100 per month per child. (Maximum of 2 children). This amount is too less. It should be at least INR 1,000 per month per child.

Hostel allowances : You are given this allowance to pay for the hostel expenses of your child. You are exempted to tax up to INR 300 per month per child. (Maximum of 2 children).Hostel costs are soaring and this amount is too less. It should be at least INR 1,500 per month per child.

Financial Planning
Tax Planning
Investment Planning