Tax on PF withdrawals of new contributions, tax deduction of interest on home loans and relief to those who live in rented houses
Individuals who contribute to the National Pension System (NPS) scheme will be happy to know that withdrawal up to 40% of the corpus at the time of retirement will be tax exempt. At the time of retirement, NPS subscriber can withdraw 60% of the corpus and invest the remaining 40% in an annuity. Earlier, the entire corpus, which can be withdrawn (60%) was subject to tax. The subscriber can now withdraw 40% of the corpus as tax exempt. The remaining 20% of the corpus, when withdrawn will be subject to tax. These same provisions shall apply to superannuation funds and recognized provident funds, including the employee’s provident fund (EPF). For these schemes, the same norm of 40% of corpus to be tax-free will apply in respect of corpus created out of contributions made on or from 1 April 2016.
Employer contribution to PF restricted to Rs1.5 lakh
Contributions made by employer to the credit of an employee participating in a recognised provident fund, which are in excess of 12% of the salary of the employee, are liable to tax in the hands of the employee. However, there is no monetary limit for the contribution made by the employer, though there is a monetary ceiling for employee's contribution (Rs1.50 lakh). Therefore, in order to bring parity in the monetary limit for contribution by the employer and the employee, employer contribution under pension schemes will now be limited to Rs1.50 lakh, without attracting tax. Contributions above Rs1.50 lakh will attract tax.
Affordable home: Additional deduction on interest
With a view to incentivise affordable housing sector, there will be a deduction for additional interest of Rs50,000 per annum for loans up to Rs35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed Rs50 lakh. This will be over and above the Rs2 lakh limit provided for a self-occupied property under section 24 of the Income Tax Act.
Rebate increase for individuals earning less than Rs5 lakh
With the objective to provide relief to resident individuals in the lower income slab, it is proposed to amend section 87A so as to increase the maximum amount of rebate, for individuals with income up to Rs5 lakh, to Rs5,000 from existing Rs2,000. To provide relief to those who live in rented houses, the limit of deduction of rent paid under section 80GG from Rs24,000 per annum to Rs60,000.
Below are the highlights of how the budget will affect your personal finances:
- Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of Rs10 lakh per annum
- Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs1 crore.
- Deduction for additional interest of Rs50,000 per annum for loans up to Rs35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed Rs50 lakh
- Increase in time period to five years from three years for acquisition or construction of self-occupied house property for claiming deduction of interest u/s 24
- Any redemption of Sovereign Gold Bond, by an individual shall not be treated as transfer and therefore shall be exempt from tax on capital gains. It is also proposed to amend section 48 of the Income-tax Act, so as to provide indexation benefits to long terms capital gains arising on transfer of Sovereign Gold Bond
- Extension of tax provision provided in case of mutual fund plan mergers. Any transfer by a unit holder in to the consolidated scheme of the mutual fund is not chargeable to tax.
- Increase the limit of deduction of rent paid under section 80GG from Rs24,000 per annum to Rs60,000, to provide relief to those who live in rented houses.
- Interest on Deposit Certificates issued under the Gold Monetisation Scheme, shall be exempt from income-tax
- Raise the ceiling of tax rebate under section 87A from Rs2,000 to Rs5,000 to lessen tax burden on individuals with income up to Rs5 lakh
- Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution
- Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS). Annuity fund which goes to legal heir will not be taxable. In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 1 April 2016.
- Government will pay contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment
- Reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases
- Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016
- Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs
- Excise duties on various tobacco products other than beedi raised by about 10 to 15%
Indirectly, the common man suffers due to all these cess. The money collected specifically for a purpose, be it Swachh Bharat or Krishi Kalyan, we have the right to know how much is collected and how it is spent.
Mr FM and Mr PM, I am disappointed with this budget.
This is a pathetic effort to market NPS. NPS suffers from several uncertainties and deficiencies (Ref; Chapter 10.3 of VII CPC Report) and best way to save it from causing further damage to those who have been forced to become part of the scheme is to merge NPS with the pension scheme administered by EPFO. Here, just because a scheme(NPS) has been introduced to deny the benefits of Defined Benefit Pension Scheme/s to ‘future’ employees, features of other retirement plans are being disturbed to make NPS attractive in comparison.
In a similar fashion, he ought to have ensured some taxation benefit to iron ore miners in the country provided they supplied these to Indian manufacturers of steel and other related products so as to encourage domestic production. He ought to have similarly imposed high duty on steel imports.
Sorry, FM, it is a disappointing budget!
In a similar fashion, he ought to have ensured some taxation benefit to iron ore miners in the country provided they supplied these to Indian manufacturers of steel and other related products so as to encourage domestic production. He ought to have similarly imposed high duty on steel imports.
Sorry, FM, it is a disappointing budget!