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Does the Budget benefit you?

Some good things from a long-term savings perspective, but these aren't likely to put substantial cash in your hands

Joydeep Ghosh Tinesh Bhasin & Ashley Coutinho 

The or consumer will be quite confused after the 2015-16. While there are no apparent tax benefits, in terms of higher basic exemption limit, increasing tax slabs or even the 80C limit, the finance minister has told us that there are substantial benefits up to Rs 4.44 lakh. Let's look at some of these benefits and if they really work.

The Budget allows an additional investment of Rs 50,000 in Should I invest in it?
Read our full coverage on Union Budget Tapati Ghose, tax partner, Deloitte, Haskins & Sells LLP, believes there is a case for New Pension System (NPS) because of embedded benefits like investment in equities. However, she believes that changing the taxation on to (EEE) regime would have helped matters substantially.


So, the tax benefit of investing Rs 50,000 in might not yield great benefits. Under the existing tax guidelines, does not enjoy status. Instead, there is a tax (EET) on the final corpus. On the other hand, the Employees' Provident Fund (EPF) enjoys status in which the final corpus is not taxable. NPS, however, provides a higher return compared to because of its exposure to equities. (INCOME-TAX IMPACT ON INDIVIDUALS)

Let's look at the numbers: If one invests Rs 50,000 in and for 10 and 20 years, respectively, considering the average returns of 8 per cent for the next 10 and 20 years, the end corpus will be Rs 7.24 lakh and Rs 22.88 lakh. If returns from are 10 per cent for the same time period, the returns for the same time periods will be Rs 7.96 lakh and Rs 28.63 lakh. But these numbers will come down substantially due to taxes. For example, if the entire corpus is taxed at 30.9 per cent after 20 years, the value will fall to Rs 19.78 lakh. Clearly, the investor is a loser if he uses the Rs 50,000 limit for now.

If the government gives the same tax treatment to NPS, the investor will gain immensely. Interestingly, the government is pushing investments in through tax benefits. But it has also indicated it is discarding the which had given status.

What does the tax benefit of Rs 4,44,200 mean?
This is a combination of different deductions an individual can claim from income. Taxpayers can claim Rs 1.5 lakh under Section 80C, then Rs 50,000 towards contribution to and health insurance deduction of Rs 25,000. Then, there's deduction of up to Rs 2 lakh on the interest component of a housing loan for self-occupied property. And finally, transportation allowance has been raised from Rs 9,600 a year to Rs 19,200.

"The figure looks big on paper. The actual tax saving it translates (to) is minuscule," says Kuldip Kumar, partner and leader Personal Tax, PwC India. For someone earning Rs 8 lakh a year and making use of all the deductions, he will end up paying tax of Rs 31,065. Before the Budget, the tax liability would have worked out to Rs 47,462. This translates to an actual saving of just Rs 16,398. For those earning above Rs 1 crore, the tax outgo can marginally rise due to the two per cent surcharge.

If I withdraw from before five years, how will I be taxed?
This will be applicable if the amount withdrawn exceeds Rs 30,000. In case the employee does not quote his PAN, tax deduction will be applicable at the maximum marginal rate. "The income is sometimes inadvertently missed out while filing tax returns. Withholding the tax will help in recognising this payment in the tax returns," says Rajesh Srinivasan, partner, Deloitte, Haskins & Sells.

According to Srinivasan, individuals whose annual income does not exceed the basic exemption limit of Rs 2.5 lakh have the option to furnish form 15H to their employers ask them not to deduct for payment.

How will service tax and tax impact me?
The Budget has introduced a cess of two per cent, while service tax has been raised by 1.64 per cent to 14 per cent. Accounting for the cess, the effective service tax would work out to 16 per cent. The overall hike in service tax will make a dent in your monthly budget. Activities ranging from eating out, watching movies and talking on the phone will cost more.

"It is not yet clear whether the cess will be applicable across the board or include only select services. It will only be cleared once the Finance Bill gets passed in May," says Saloni Roy, senior director, Deloitte.

How to use the medical insurance benefits?
Buying medical insurance for self and family, especially senior citizens, will be a lot more beneficial. "The proposed increase in premium deduction under 80D for senior citizens is a very positive step which would entail that senior citizens, especially those in their retirement phase, will now be incentivised to buy adequate health covers commensurate with the increasing costs of treatments incurred in their age band. The best part is that employees covered under ESI would have an option to shift to health insurance which would open for them the entire range of hospitals with ultra modern facilities and ensure even they can avail the best treatment," says Rakesh Jain, CEO, Reliance General Insurance

Deduction for has been increased to Rs 25,000 from the existing Rs 15,000 and for senior citizens it has been increased from Rs 20,000 to Rs 30,000. There are benefits for medical expenses as well. The limit for claiming deduction in respect of medical treatment of dependents with disability has been increased to Rs 75,000 from Rs 50,000 for claiming deduction; in respect of medical treatment of dependents with severe disability, it has been increased to Rs 1.25 lakh from Rs 1 lakh.

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