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Budget 2016-17 Impacts on Personal Finance

Posted By ravikumarnama 1347 days ago on Finance - Our Finance Minister, Arun Jaitley recently announced the Budget 2016-17 in the Parliament. Lot of discussions happening on the prospectus and impacts of Budget in the country. Considering Personal finance, there are no major changes happened in the Budget. However, there are some noises going on issues like EPF withdrawals etc, but on the whole there are no major positive changes to the salaried and tax payers. The impacts of Budget will be seen in the long term. Will see the changes that happened in the Budget with respect to Personal Finance.Budget 2016-17: Major Impacts on Personal Finance1. No changes to existing income tax slabs:There is no change in the existing Income tax slabs. This is a big disappointment to the salaried employees. Many of us expected that Government would increase the existing Tax exemption limit from the existing Rs 2,50,000 to Rs 3,00,000. This impact would benefit approximately 3 crore people that can save Rs 20 crores. This will be a negligible burden (just 1% only) on the Government also when compared to the total National Tax fund. Hope this will be considered in the coming Budgets. However, there is a small favorable change that people with income less than Rs. 5 lakh to get deduction of Rs 5,000 under section 87A which is up from Rs 2,000 last year.2. EPF Interest becomes taxable for 60% corpus:This is a most noisy change happened in the current Budget. Currently there is no tax on withdrawals of EPF and completely tax exempted. However, from 1st April 2016 on wards,the interest component on your 60% EPF Corpus will be taxed at the time of withdrawals and the remaining 40% corpus will be completely tax free. One more point is, this is applicable only on the interest earned after 1st Apr, 2016. The interest earned before 1st April 2016 will be tax free. If this 60% of taxable corpus is invested in an Annuity or Pension schemes, then there will be no tax on this 60% corpus. One more small change is, the TDS limit for EPF withdrawal raised from current Rs.30,000 to Rs.50,000. Earlier if you withdraw EPF within 5 years and the amount is less than Rs.30,000 then there will be TDS of 10%. However, this limit now raised to Rs.50,000. It means, if you withdraw EPF within 5 years and the amount is less than Rs.50,000 then there will be TDS of 10%. This is also a negative impact on applicable salaried employees.Note --> However, Arun Jaitley confirmed on 08-Mar-2016 that Government is rolling back the EPF Taxes and continue the previous rules and regulations on EPF withdrawals for this FY. No assurance of the same in the future.3. 40% of the NPS corpus will be tax free at the time of maturity:This is really an encouraging change towards NPS investments. 40% of your NPS corpus will be tax free at the time of maturity, rest 60% corpus will be taxed if you withdraw it fully. Also, if you purchase an annuity (pension) plan from the remaining 60% corpus you won’t have to pay the tax. However note that the pension amount which you will get will be normally taxed as the income in your hands. These changes making Annuity plans in the limelight. However, the average returns from the Annuity plans are ranging from 5% - 7% only and if you consider the inflation rate, then there will be no returns from the Annuity plans and you just save the tax only.4. Additional exemption of Rs. 50,000 for housing loans:First time Home buyers can enjoy additional Rs 50,000 tax exemption in interest part apart from the current exemption of Rs 2,00,000. There are some conditions apply points are there to avail this additional tax benefit.Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.The loan should be taken in the coming FY i.e. between 1st April 2016 – 31st Mar 2017The home buyer should not have any other residential house on his nameI think this may not be a big positive to the New home buyers. Because in most cases, if you take the home loan for Rs 35 Lakhs, the interest component may not be higher than Rs 2,00,000.5. HRA deduction up from Rs. 24,000 to Rs. 60,000 p.a.:As per sec 80GG, those who do not get HRA in their CTC from their employer can now claim upto Rs 60,000 per year as a deduction under rent paid. Earlier this was only Rs 2,000 per month. This will help a lot to those people whose employers are not giving them HRA Component. Rs 5,000 though is a less amount, but still a respectable deduction at least. This is certainly a positive news for the employees who are living in a rented house.6. Miscellaneous changes:Government will pay 8.33% of the EPS contribution for 3 years for new employees.If your dividend income in a year is more than Rs.10 lakh, then apart from dividend distribution tax, you also be taxed at 10%. This is not applicable to dividends from MFsTDS of 1% if you buy a car valued more than Rs.10 lakh or on the purchase of goods and service exceeding Rs.2 lakh.Security Transaction Tax (STT) has been increased from 0.017% to 0.05% for sellers in Future and Option Market.To boost the Sovereign Gold Bonds, the FM proposed that redemption of Sovereign Gold Bonds will not be charged for capital gain tax.Maximum contribution towards superannuation fund or recognized provident fund is restricted to Rs.1.5 lakh for employer. Pre-Construction period for taxation purpose raised from 3 years to 5 years to claim tax benefits on home loan of a self-occupied property.Reduction in service tax on single premium annuity insurance policies from existing 3.5% to 1.4% of the premium paid.Conclusion: To summarize, there are very few positive benefits to the salaried and tax payers. However, my sincere suggestion is that Savings is not for the tax purpose but for the growth in assets. Choose the assets that will give Inflation-beat returns and invest into them systematically for long term. 

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