Her are the key takeaways from the Union Budget 2016 which will have an impact on your personal budget as an investor or tax payer.
1) 40% of NPS Withdrawal taxfree: Up to 40% of the corpus withdrawal to be tax exempt in the case of National Pension Scheme (NPS). With additional 50 K additional tax benefit beyond 80C, NPS to become attractive for investors. The remaining 60% can be tax-free too if used for buying annuity.
2) Only 40% EPF withdrawal to be taxfree: To create a level playing field amongst retirement products, Government seems to be moving EPF from 100 % EEE regime to partial EEE regime to put it on par with NPS. This is applicable only on new investments from now on. There is still a confusion if even PPF will be treated this way, will have to wait for more clarity.
3) 60 K Deduction for House Rent: Deduction amount claimed against rent paid to be increased from 24,000 pa to 60,000 pa under Sec 87A. Not many know about this. Basically this is useful to people staying on rent but do not have HRA as an income component.
4) 0.5% Krishi Kalyan Cess: Just like Swach Bharat Cess, consumers will have to now bear introduction of Krishi Kalyan Cess of 0.5% on service tax for the welfare of farmers. So total tax will be 15% from June 1st onwards
5) 1.5 % Service tax reduction for Annuity Policies: Service tax to be reduced from 3.5% to 1.5% on premium of single premium annuity policy from insurance companies and pension funds. This is a positive move for annuity schemes for generating regular retirement income.
6) 10 % Dividend Distribution Tax: Additional tax at the rate of 10% of gross amount of dividend earned will be payable by the recipients receiving dividend in excess of 10 lakh per annum. Kindly note that this is for income from only company stock dividends and NOT from MF dividends.
7) 5,000 Rebate for Income upto 5 Lakhs: Rebate increased from Rs.2,000 to Rs. 5,000 for an individual having annual income of up to Rs.5 lakh per annum. Now, such individuals can avail total rebate of Rs.5,000 in an assessment year.
8) 50 K add. tax deduction for home buyers : First time home buyers to get an additional deduction of Rs.50,000 on interest component of EMI. Value of such houses should not exceed Rs 50 lakh and loan 35 lakhs.
9) 15 % Surcharge on 1 Crore+ Income: surcharge has been raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs. 1 crore.
Taxes are a reality that we have to live with. We have to look at the tax provisions that apply to us and then move on to optimize your tax outgo.
I would focus on investing in myself so that my income grows and helps me lead a quality life. What about you?