Middle path

However,taxpayers with income between R5 lakh and R1 crore don’t get any benefit.

Similarly,the Budget proposes to amend RGESS to make it more lucrative for retail investors. The amended scheme proposes to allow first-time retail investors to invest their funds not just in listed shares,but also in listed units of equity oriented mutual funds. Also,tax benefit would now be available for three consecutive years,instead of one year. The eligibility criteria is relaxed and people with income up to R12 lakh can invest up to R50,000 and claim 50% tax deduction on the amount invested.

In fact,in the existing structure,an investor can get a maximum tax saving of R5,150 for one year. In the proposed structure,the maximum tax saving will be R7,725 every year for three years. Taxpayers should use the savings proposed by the finance minister of R2,060 and invest them in RGESS or any other tax-saving instrument and save more tax.

Some other changes merit attention. The finance minister has reduced the rates of securities transaction tax and introduced annexure-less and paperless e-filing of wealth tax returns. Moreover,he has proposed 100% deduction for donation to the National Children’s Fund. In fact,the Finance Bill,2013,underlines that donations to funds that are of national importance have been generally provided a deduction of 100% of the amount donated.

“Since the National Children’s Fund is also a fund of national importance,it is proposed to allow 100% deduction in respect of any sum paid to the fund in computing the total income of an assessee,” says the Bill.

Middle-class homebuyers have a reason to cheer as their dream of first home can become true now. It has been proposed that any person taking a loan of up to R25 lakh for the first time during FY14 will be allowed an additional tax deduction on interest up to R1 lakh. At present,taxpayers are allowed to set off interest payment up to R1.5 lakh (in case of a self-occupied house) against their taxable income. In case the entire deduction of R1 lakh cannot be claimed in the first year,the balance deduction can be claimed in the subsequent year.

This tax sop comes with a rider that the house does not cost more than R40 lakh. This means that people staying in big cities like Delhi and Mumbai may not benefit,and those living in tier-II and tier-III cities could take advantage of this additional deduction and boost housing sales in such cities. The loan should be taken between April 1,2013,and March 31,2014. The loan amount cannot exceed R25 lakh and the buyer should not own any other house on the date of sanction of the loan.

The finance minister has proposed a 10% surcharge on individuals earning more than R1 crore. This is a one-time levy for FY14,which will impact some 42,800 persons. It will affect companies that hire expatriates on high salaries. In some cases,where tax is picked by the company,there will be a higher tax outflow,resulting in pushing the cost of hiring such employees.

The finance minister has proposed tax deduction at source at 1% on transfer of immovable property exceeding R50 lakh. Also,insurance premium for people suffering from specified disability and ailments will be eligible for higher deduction up to a maximum of 15% against 10% earlier.

By giving some goodies in form of tax sops to the middle class and taxing the super-rich,the finance minister has done a balancing act. The Budget is likely to control inflation as indirect taxes have not been levied on most of the purchases made by the middle class. Hopefully,this will bring a smile in the long term.

The author is a director in KPMG. The views expressed are personal