Budget 2014 & Your Money
How will the budget 2014 impact your personal finances?


Tax Slabs Increased

The Budget brought some respite to savers in a high inflation environment. For senior citizens (above 60 years but below 80 years), the threshold limit increased from Rs2.50 lakh to Rs3 lakh. For others, threshold limit increased from Rs2 lakh to Rs2.50 lakh. For individuals above 80 years, there is no change; Rs5 lakh threshold continues. An individual will save a minimum of Rs5,150/- in taxes (Rs50,000*10.3%). An individual in the highest income slab will save Rs5,665 [Rs50,000*11.33% (including surcharge)]. 
Section 80C Limit Hiked
Taxpayers can now save more on tax, with a higher limit under Section 80C. The limit of investment under Section 80C has been increased to Rs1.5 lakh from the earlier Rs1 lakh. With this increase, an individual would save a minimum of Rs5,150 (Rs50,000*10.3%) and a maximum of Rs16,995(Rs50,000*33.99%).

Home Loan Interest

To encourage people, especially the young, to own houses, the tax exemption for interest paid on self-occupied house under a home loan has been increased to Rs2 lakh from Rs1.5 lakh earlier. The tax-savings for individuals would range between Rs5,150 and Rs16,995, depending on the income-tax bracket of the individual.
Additionally, on 15 July 2014, the Reserve Bank of India (RBI) announced a raft of measures to encourage bank lending. Therefore, home loans up to Rs50 lakh may get cheaper. Home loans to individuals up to Rs50 lakh (for houses of value up to Rs65 lakh) in metros and loans up to Rs40 lakh (home value Rs50 lakh) in other centres will be considered as affordable housing. Extending these loans will entitle banks to float infrastructure bonds which will not be subject to statutory reserve requirements.

Residential Property

The Finance Bill 2014 also made changes to the capital gains for the sale proceeds of a residential property re-invested. According to the new provision, you cannot sell one house and invest the money in two smaller houses to claim tax exemption from long-term capital gains. The Bill states that the benefit of long-term capital gains tax exemption can be availed only for re-investment in one residential house and that too has to be purchased in the country. However, the controversy about whether two adjoining flats constitute one residential house or not continues.
Under Section 54 of the Income-tax Act, 1961, an individual can get long-term capital gains tax exemption after selling his house property, which is held for more than three years, and purchase another residential house or construct a house within three years of the sale.

Tax Saving Bonds

Presently, the Income-tax Act provides a deduction from long-term capital gains if the amount of gains from selling capital assets is invested in certain bonds issued by the National Highway Authority of India (NHAI) and the Rural Electrification Corporation (REC) within six months from the day of the sale. The investment of capital gains in bonds for this Section 54EC exemption is now being restricted to Rs50 lakh both in the year of transfer of the capital asset and in the subsequent year, so that one can’t claim exemption of Rs1 crore for investments made in both the years. However, there is no mention about exemption for gain earned in the next year. For example, if you have claimed the full Rs50 lakh benefit in the previous year and sell another asset, whether this would come under the Rs50 lakh limit of the previous financial year or the current financial year, is not clear.

Debt Mutual Funds

In the Finance Bill, the concessional rate of 10% on long-term capital gains (LTCG) on sale of non-equity units has been withdrawn and the period of ‘long-term’ has been raised to 36 months from 12 months. With this, the tax for LTCG of debt mutual fund units will be at a single rate of 20% with indexation. However, a clarification on the applicability of this new amendment is yet to be announced. This will immediately impact fixed maturity plans (FMPs). Those who have invested in debt funds maturing in the next three years will be impacted. 
The Finance Bill has also changed the calculation of dividend distribution tax (DDT). Dividends distributed by mutual funds will now be paid on a gross basis and not on the net amount of dividend paid. Therefore, the effective rate of DDT will now be as much as 39.52% compared to 28.33% earlier.

Life Insurance

It has been wrongly assumed that all insurance policies are exempt from tax under Section 10 (10D). This Section only exempts amounts where the sum assured is less than 10 times the annual premium. Therefore, life insurance policy maturity, or surrender proceeds where Section 10 (10D) does not apply, will be subject to a TDS of 2% at the time of payment. If the amount received is less than Rs1 lakh, it will be exempt.

Save More in PPF

The investment limit in public provident fund (PPF) has been increased to Rs1.5 lakh from the earlier Rs1 lakh. PPF enjoys the exempt-exempt-exempt status; therefore, the contribution, the accumulation and withdrawal are all exempt from tax. This makes it a popular investment product. For the current financial year, the interest paid on investments continues to be 8.7%.
The finance minister has widened the list of investment products. The Kisan Vikas Patra (KVP), which was junked in December 2011, has been brought back. KVPs were available in denominations of Rs100 to Rs50,000. The details of the new scheme are awaited. A special small saving scheme focusing on education and marriage of the girl child has also been introduced. The National Savings Certificate (NSC) will also offer an insurance cover, providing additional benefit for the saver.

Single Demat and Uniform KYC

As a result of the steps taken to energise the financial market and encourage savings, investors may be able to access details of their investments across a wide range of instruments, not just shares and mutual funds, from a single demat account. There would also be one know-your-customer (KYC) requirement which can be used across the entire financial sector. These changes will enable consumers to access and transact all financial assets through one account. This has been on the planning board for a long time; implementation will be the key.

Single EPF Account

The single employee provident fund (EPF) account will enable over 50 million EPF members to obviate the process of transferring their accounts on changing jobs. At present, employees have to apply for transfer of PF accounts when they change jobs. This will benefit approximately 1.3 million PF transfer claims every year. 


How the FM has created confusion about retirement products

The Union Budget 2014-15 has talked about retirement saving products and in the process created confusions


The maiden budget of Narendra Modi-led National Democratic Alliance (NDA) government mentions on page 12 that that there would be a “uniform tax treatment for pension and mutual fund linked retirement plans”. However, neither the actual budget speech of Arun Jaitley, the finance minister nor the Finance Bill 2014 makes any mention of it. Similarly, there is confusion on the applicability of tax benefits for private sector employees who have invested in New Pension System (NPS) schemes.


When it comes to retirement saving options, few look beyond the options such as the Public Provident Fund (PPF) and the Employee Provident Fund (EPF). However, investing in these products alone may not be adequate for savers. Those who are active in their financial planning for retirement or those who are coaxed by agents or distributors often consider retirement or pension plans of mutual funds or insurance products or equity linked savings schemes (ELSSs). Some may even invest in the schemes of the NPS. For them, the FM has created a lot of confusion.


While there is a mention of ‘Uniform tax treatment for pension fund and mutual fund linked retirement plans’, no one is clear about what he really meant. Put it down to shoddy work by the officials in the finance ministry, who as usual have no truck with the savers and their issues.


There are just two such retirement-oriented schemes from mutual funds right now: Templeton India Pension Plan and UTI Retirement Benefit Pension Fund. Both these schemes offer investors a tax benefit (up to Rs1.5 lakh, raised from Rs1 lakh earlier) as notified under section 80C of the Income Tax Act, 1961. Would such the tax benefits be extended to NPS?


At present, there is a total limit of Rs1.5 lakh (raised from Rs1 lakh earlier) up to which you can claim deduction under Section 80CCD (1) (for your own contribution towards NPS account) that is included in your 80C limit. Deduction under 80CCD (1) will be allowed only if you invest in Tier-1 NPS which puts severe restrictions. If your employer is contributing on your behalf, under Section 80CCD (2), you can avail of an additional tax benefit for your employers contribution. This is over and above the Rs1.5 lakh limit (raised from Rs1 lakh earlier) of Section 80C.


Under Section 80CCD (2) if an employer contributes 10% of the basic salary plus dearness allowance to the NPS account of an employee, it gives excellent tax benefit to the employee. The best part is that such contributions are not included in the exemption limit that you can avail under Section 80C and the employer can show his contribution as deduction from the business income under Section 36 I (IV) A. Therefore, can employers opt for retirement plans of mutual funds for employee retirement contributions and gain the same benefit as that of the NPS? No one knows.


The Securities and Exchange Board of India (SEBI) at its board meeting in February 2014 discussed the need for restructuring of tax incentives for mutual funds schemes. One of the proposals was to introduce Mutual Fund Linked Retirement Plans (MFLRP), a pension fund similar to the currently available NPS, EPF and PPF. “MFLRP is envisaged to give them (EPF, PPF and NPS investors) a good alternative for parking their retirement savings,” mentions a SEBI paper on ‘Long Term Policy for Mutual Funds in India’. Yet, even after the budget proposal, SEBI and mutual funds remain mum on the introduction of these schemes.


Commenting on the budget proposal, A Balasubramanian, chief executive of Birla Sun Life Mutual Fund says, “This has opened up the retirement investment space for mutual funds. It can become a 401(k) (of India).”


However, fund companies are still waiting for additional details on how this scheme would work. There is a no clear framework on how the plan would work. Would it be according to that outlined by SEBI in its board meeting this year? Or would it be something different altogether? Nobody even knows the FM is at all considering MFLRPs.


NPS tax benefits for private sector employees


The applicability of Section 80 CCD for private sector employees investing in a pension fund has been a much-discussed issue. Private sector firms were allowed to enrol employees into the scheme from 1 May 2009. However, a condition of joining service on or after 1 Jan 2004 for claiming deduction under section 80CCD was intended only for public sector employees. The latest budget has amended the wordings of the condition so that even private sector employees who have joined service before 1 Jan 2004 can claim deduction for NPS contributions under section 80CCD.


How would this impact private sector employees who’ employers contribute on their behalf to the NPS scheme? Industry experts have different views. Some are saying the section was reworded to bring clarity and thus would have no implication for private sector employees who have claimed deduction under this section earlier. Others have the view that, private sector employees, employed before 1 January 2004 would have wrongly claimed a tax deduction, according to the exact wordings, they would not be eligible for a tax deduction under this section. The contributions made by them would be construed as wrong deduction of tax. Only an official statement would clear this confusion.



R Balakrishnan

2 years ago

Alas,this budget exposes the utter ignorance of Jet Lee and the RSS chappies in understanding of finance, esp of the variety that makes for the national budget. They have made a total mess of things and once again we hope that a general economic revival will take care of things in general.


MG Warrier

In Reply to R Balakrishnan 2 years ago

My view is that we should not take undue advantage of the fact that comments are not being 'moderated' by moneylife. This is a personal view. We should use this space for specific comments on subject/s covered in the article rather than to express our views on politics and economics in general. The positive note, 'a general economic revival will take care of things in general', is to be welcomed.

Sensex, Nifty uptrend to lose strength – Monday closing report

Watch out for a close below today’s low, for the up move to weaken and a short downtrend


On Monday Indian market made a small gain as it did on Friday. For the fifth consecutive day, the market closed in the positive, with sentiments boosted by the improved monsoon.
The S&P BSE Sensex opened at 25,777 while NSE's CNX Nifty opened at 7,702. After hitting the day’s high at the beginning of the session at 25,861 and7,722 the indices started trending lower. After hitting the day’s low at the end of the session at 25,678 and 7,674, both Sensex and Nifty closed at 25,715 (up 74 points or 0.29%) and 7,684 (up 20 points or0.26%), respectively. NSE recorded a much lower volume of 72.18 crore shares. India VIX fell 1.31% to close at 14.8975.
Among the other indices on the NSE, the top five gainers were Media (1.40%), FMCG (1.12%), Consumption (0.60%), Finance (0.44%) and Smallcap (0.41%), while the top five losers were PSU Bank (1.13%), Realty (0.61%), Infra (0.59%), PSE (0.52%) and CPSE (0.43%).
Of the 50 stocks on the Nifty, 25 ended in the green. The top five gainers were IndusInd Bank (3.44%), Asian Paints (2.51%), HDFC (2.21%), Reliance Industries (1.97%) and ACC (1.78%). The top five losers were DLF (2.94%), Tata Power (2.03%), Gail (1.99%), IDFC (1.98%) and Bhel (1.86%).
Of the 1,613 companies on the NSE, 936 companies closed in the green, 607 companies closed in the red, while 70 companies closed flat.
The government announced today that that there has been significant increase in the monsoon during the last one week, beginning from 13th July, recording dramatic increase in the monsoon country-wide. In June and first two weeks of July, the monsoon was deficient by 43%. In the week beginning 13 July 2014, the deficiency was only 32%.
On Sunday, 20 July 2014, the Ministry of Shipping has decided that lifetime licences will be issued to Indian ships and any other ship charted by an Indian citizen or an Indian company instead of such licences being renewed every year as the system works now. Ship operators now need not undertake the exercise of getting the licence every year.
Revenue and operating profit of HDFC for June 2014 quarter recorded a growth of 16% and 19% respectively over June 2013 quarter. HDFC (3.06%) was the top gainer in the Sensex 30 pack.
Tata Power, which filed its shareholding pattern on Friday, showed a growth in the FII holding to 28.61% for June 2014 quarter from 25.76% for March 2014 quarter. Tata Power, which was the top loser among the Sensex 30 stocks on Friday, continued to lose even today, being the top loser again (fell 1.75%).
Century Textiles, top gainer in the ‘A’ group on the BSE, hit its 52-week high today at Rs642.80 and closed at Rs633.50 (up 9.48%).
Crisil (3.85%) was the top loser in the ‘A’ group on the BSE. Crisil which came out with its result on Friday after market hours. It recorded a 13% growth in revenue for the June 2014 quarter over the June 2013 quarter, while the operating profit recorded a growth of just 7% for the relevant period.
US indices closed Friday in the positive. Asian indices showed a mixed performance. Among the indices which were trading today, Jakarta Composite (0.79%) was the top gainer while Hang Seng (0.29%) was the top loser.
European indices were trading in the red. US Futures were also trading lower.


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