The Budget for 2014-15 raised individual income tax limit from Rs 2 lakh to Rs 2.5 lakh for citizens up to 60 years of age and from Rs 2.5 lakh to Rs 3 lakh for persons above 60 years.
Simultaneously, Jaitley also raised the limit of small investments that are exempt from income tax, from existing Rs 1 lakh to Rs 1.5 lakh. This relief is provided for investment made in schemes listed under 80C of Income Tax Act, like Public Provident Fund, life insurance, fixed deposits and Provident Fund.
For home loan borrowers, the Budget raised the tax benefit on interest payment of housing loans to Rs 2 lakh from Rs 1.5 lakh at present on self occupied properties.
The hike in exemption limit and increase in saving ceiling will lead a maximum tax saving of Rs 39,655 where surcharge is applicable.
For people with net annual income of Rs 3 lakh, the relief today provided will result in saving of Rs 5,150 in taxes. For individual with Rs 5 lakh net income, the tax benefit will come to Rs 10,300 after considering tax deduction under 80C.
For persons with income of Rs 10 lakh, the savings in taxes would Rs 15,450, according to calculations by KPMG.
"I do not propose to make any change in the tax rate. However, with a view to provide relief to small and marginal taxpayers and senior citizens, I propose to increase personal income tax exemption limit by Rs 50,000 that is, from Rs 2 lakh to Rs 2.5 lakh in the case of individual taxpayers who are below the age of 60 years," he said while presenting budget for 2014-15 in the Parliament.
The proposal, according to an estimate, is likely to benefit about 2 crore tax payers.
Similarly, he raised tax exemption limit from Rs 2.5 lakh to Rs 3 lakh in the case of senior citizens above 60 years but lower than 80 years.
"I do not propose to make any change in the rate of surcharge for either for corporates or individual. The education cess for all tax payers shall continue at 3 per cent," he said.
Thus, tax on income from Rs 2.5 lakh to Rs 5 lakh is retained at 10 per cent, up to Rs 10 lakh at 20 per cent and above 10 lakh at 30 per cent.
Deloitte Haskins & Sells Partner Tapati Ghose said with a maximum savings of Rs 36,050 (where surcharge not applicable) and maximum tax saving of Rs 39,655 where surcharge is applicable, the Finance Minister has done a fair bit to keep the sentiments positive.
"The proposals are broad based keeping all in mind - the young and the old, the middle class individual and the short term investor, the rural and urban India," she said.
KPMG Partner Vikas Vasal said the increase in popular tax deduction under 80C from Rs 1 lakh to Rs 1.5 lakh will help achieve twin objectives of encouraging the households to make long term savings, and also increase the overall savings rate in the economy which has fallen considerably over the last five years.
"To address the concerns of decline in savings rate and improving returns for small savers, I propose to revitalize small savings," Jaitley said, adding, annual ceiling for PPF investment ceiling will be enhanced to Rs 1.5 lakh from Rs 1 lakh at present.
Noting that households are main contributors to savings, he said the investment limit under 80C has been raised to Rs 1.5 lakh from the existing Rs 1 lakh to encourage savings.
"Housing continues to be an area of concern for middle and lower middle class due to high cost of financing. Therefore, to reduce this burden, I propose to increase the deduction limit on account of interest on loan in respect of self occupied house property from Rs 1.5 lakh to Rs 2 lakh," the Finance Minister said.