Budget 2014 - Changes in Personal Income Tax

Summary of changes in personal income tax which affect us are given below:

• Tax slab for individuals raised by Rs. 50000 - this means that for individuals, the exempted limit would be Rs. 2,50,000.00 ; for senior citizens, it is Rs. 3,00,000.00 . Please note that there is no change in the limit for senior citizens above 80 years old - the exempted limit remains at Rs. 5,00,000.00
• Deduction u/s 80C increased to Rs. 1.5 Lakhs - simultaneously, the PPF investment limit has also been raised from Rs 1 Lakh to Rs. 1.5 Lakhs
• Deduction for interest paid for a housing loan u/s 24, has been increased to Rs 2 Laksh from Rs. 1.5 lakhs. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years.
• Indexation benefit for debt mutual funds ( all non-equity mutual funds) : To qualify as long term investment, the period of holding of a non-equity mutual fund is now increased to 3 years from 1 year earlier.This amendments will take effect from 1st April, 2015 and will accordingly apply, in relation to the assessment year 2015-16 and subsequent years. If you are investing in any existing debt fund / FMP or any non-equity mutual fund, you will have to hold on to the units for 3 years to have the investment qualify for indexation benefits.  

• Capital Gains deduction under Sec 54 EC - for assets sold after September, ambiguity regarding investment amount due to change of financial year has been removed:  The existing provisions u/s54EC of the Act provide that where capital gain arises from the transfer of a long-term capital asset and the assessee has, within a period of six months, invested the whole or part of capital gains in Capital Gains Bonds the proportionate capital gains so invested in the long-term specified asset, out of the whole of the capital gain, shall not be charged to tax. This investment made in the long-term specified asset during any financial year shall not exceed fifty lakh rupees. However, the wordings of the proviso had created an ambiguity. As a result the capital gains arising during the year after the month of September were invested in the specified asset in such a manner so as to split the investment in two years i.e., one within the year and second in the next year but before the expiry of six months. This resulted in the claim for relief of one crore rupees as against the intended limit for relief of fifty lakh rupees. Accordingly, it is now proposed that the investment made by an assessee  in the long-term specified asset, out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees totally. This means that exemption is limited to Rs 50 lakhs. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years.

Some changes and points to note

• TDS on non-exempt insurance payments above Rs. 1 Lakh: Under the existing provisions of section 10(10D) of the Act, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt subject to fulfillment of conditions specified under the said section. Therefore, the sum received under a life insurance policy which does not fulfill the conditions specified under section 10(10D) are taxable under the provisions of the Act. In order to have a mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempted under section 10(10D) of the Act, it is proposed to insert a new section in the Act to provide for deduction of tax at the rate of 2 per cent. on sum paid under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D) of the Act. In order to reduce the compliance burden on the small tax payers, it has also been proposed that no deduction under this provision shall be made if the aggregate sum paid in a financial year to an assessee is less than Rs.1,00,000/-. This amendment will take effect from 1st October, 2014.
• Kissan Vikas Patra to be re-introduced
• No change made in deductible amounts u/s 80 D - payments for mediclaim policies

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