Time for prudence, restraint and patience

“In a constrained economy, there is little room to raise tax rates or large amounts of additional tax revenues. Equally, there is little room to give away tax revenues or the tax base. It is a time for prudence, restraint and patience.” 

This statement made by Honorable finance minister Mr. P.Chidambaram summarizes what is (or is not) in store for individuals in this budget.  There has been no change in the income slabs based on which tax is determined.  To benefit individuals who earn less than Rs. 5 lakhs per annum, a minuscule tax credit of rupees two thousand has been given.  Besides this there is hardly any permanent additional benefit for individuals in the budget.  Certain changes which shall impact your tax liability and determine your investments are covered below.

Interest on home loan eligible up to Rs. 2.5 lakh

An individual planning to purchase residential housing property shall get an additional deduction of Rs. 1 lakh on the interest amount paid to service the home loan.  However, this benefit comes with many riders.  First, this benefit is for individuals who do not own any residential properties at the time of sanction of loan amount.  Second, the value of such property should not exceed Rs. 40 lakhs.  Third, the home loan amount should not exceed Rs. 25 lakhs and it should be sanctioned in financial year 2013-14.  If the interest amount during the year is less than Rs. 1 lakh, the balance amount can be claimed in the subsequent year. 

Scope of RGESS widened

Rajiv Gandhi Equity Savings Scheme (RGESS) was introduced in the last budget to attract new retail investors to invest in equities.  The scope of the scheme has been increased to cover listed units of an equity oriented mutual fund and individuals having total income upto Rs. 12 lakhs are now elligible to claim this deduction.  The deduction, which was earlier restricted for one year, is now available for 3 consecutive years from the date of first such investment.

Other changes which impacts your investment decisions

The securities transaction tax (STT) on equity oriented mutual fund has been reduced which shall lead to increased returns from equity mutual fund investments.

On the other hand, dividend distribution tax on debt oriented mutual funds has been increased from 12.5% to 25% discouraging debt oriented mutual funds with dividend payout option.

Any transfer of immovable property, other than agricultural land, of value equal to or exceeding Rs. 50 lakhs shall attract 1%  TDS on the property value.

Further it has been proposed that where any immovable property is received for a consideration less than the stamp duty value of the property by an amount exceeding Rs. 50,000, the stamp duty value of such property as exceeds such consideration, shall be chargeable to tax in the hands of individual.

Commodity transaction tax has been introduced wherein sale of commodity derivatives (other than those involving agricultural commodities) shall attract transaction tax @ 0.01%.

On positive side, the finance minister has proposed introduction of inflation indexed bonds or inflation indexed national security certificates.  This shall give investor inflation adjusted interest returns and shall be a good investment alternative.  The tax free bonds, which provide tax free interest to the investors, shall continue to be issued in the next year.

(Concise version of the above post was printed in DNA's edition of 1st March 2013)