Monday, Oct 20, 2014

Eye on savings, govt gives higher deductions

Experts feel that the decision will lead investors towards long term savings products. Experts feel that the decision will lead investors towards long term savings products.
ENS Economic Bureau | New Delhi | Posted: July 11, 2014 1:11 am | Updated: July 11, 2014 11:53 am

Three key announcements by finance minister Arun Jaitley on personal taxation have the potential to provide additional annual tax savings of up to Rs 35,000 at the hands of an individual or almost Rs 3,000 every month beginning April 2015.

On Thursday, Jaitley announced to raise the exemption limit for individuals from Rs 2 lakh to Rs 2.5 lakh and also for senior citizens from Rs 2.5 lakh to Rs 3 lakh. The move alone will result into tax savings of Rs 5,000 for all tax payers as the government has exempted taxable income of Rs 50,000 falling in the 10 per cent tax bracket.

The finance minister also announced to raise the deduction limit under Section 80C from Rs 1 lakh currently to Rs 1.5 lakh, thereby providing additional tax savings on Rs 50,000. An individual falling in the highest tax bracket of 30 per cent will save Rs 15,000 in taxes as a result of the same. While those falling in the 10 and 20 per cent marginal tax rate category will save Rs 5,000 and Rs 10,000 respectively as a result of this move.

Experts feel that the decision will lead investors towards long term savings products.

“The increase in the 80C limit enhances tax incentive for potential retail investors to invest into equities mutual fund,” said Sandesh Kirkire, CEO, Kotak Mutual Fund.

This is not all, as the finance minister has also offered to enhance the benefits to be availed on the interest component of the home loans. The finance minister increased the deduction limit on account of interest component of the home from Rs 1.5 lakh to Rs 2 lakh, thereby providing tax benefits on Rs 50,000. While an individual falling in the highest marginal tax bracket will save Rs 15,000 on that account, those falling in the lowest tax bracket will save Rs 5,000.

On a aggregate, the three proposals will lead to savings of up to Rs 35,000 for an individual falling in the highest marginal tax bracket of 30 per cent while those falling in 10 and 20 per cent tax bracket would save up to Rs 15,000 and Rs 25,000.

Surya Bhatia, a Delhi based financial planner said, “The government’s decision provides additional savings of up to Rs 35,000 for individuals and thereby leaves an additional amount at the hands of the individuals.”

Other than this the finance minister also announced to raise the raise the annual investment ceiling in PPF scheme from present Rs 1 lakh to Rs 1.5 lakh and investors can utilise the limit for tax saving under Section 80C.

In another move to make it easier for investors to make investments the finance minister announced to make KYC uniform across the entire financial sector. He also said that a single operating demat account will be introduced that will allow transactions of all financial assets.

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