Post the demonetisation phase, people had lots of expectations from the Union Budget. The budget to some extent matched the expectations of the common man.
Some of the budget proposals can surely impact the savings of a common man, like while planning to buy or sell one’s property or any financial asset, paying rent to landlord above Rs 50000. Moreover, they will have a direct impact on one’s salary because of the reduced income tax rates.
Here are five Budget proposals which can help you save money.
Reduction in income tax rates:
Reduction in the tax rate from 10% to 5% for the income tax slab of Rs 2.5 lakh to Rs 5 lakh will have a positive impact on employees’ saving. After this amendment, employees can save more in their pocket, especially those whose income is below Rs 50 lakh. This amendment will help you in saving up to Rs 12500 every financial year.
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Increasing option under Section 54EC
The Finance Minister in his budget has announced that you will get more options under Section 54EC. Currently, where people can invest up to Rs 50 lakh in capital gains bonds from NHAI and REC to save LTCG’s tax only, the government has now proposed to widen the scope of the section for sectors which will help in raising the fund by issuing of bonds eligible for exemption under section 54EC of I-T Act. The proposed amendment of section 54EC will provide that an investment in any bond which is redeemable after 3 years, has been notified by the Government in this behalf will now also be eligible for exemption under I-T Act. However, the cap remains unchanged at Rs 50 lakh. The amendment will effect from 1 April 2018.
Incentives for promoting investment in immovable property
With a view to promote the real-estate sector and to make it more attractive for investment, the government wants to amend the section 2 (42A) of the I-T Act in order to reduce the period of holding from the existing 3 years to 2 years in case of immovable property, being land or building or both, to qualify as long-term capital asset. It is a good move for employees because taxation under long-term capital gains is calculated at 20% after indexation, get much favorable tax treatment comparing to short-term capital gains where tax treatment is done on marginal income tax rate. This amendment will take effect from 1st April 2018.
Change in base year from 1981 to 2001
In order to change the base year for computation of capital gains, an amendment of section 55 of the Act is proposed so as to provide that the cost of acquisition of an asset acquired before 01.04.2001 will be allowed to be taken as a fair market value(FMV) as on 1st April 2001 and the cost of improvement will include only those capital expenses which are incurred after 01.04.2001. Consequential amendment in section 48 has also been proposed so as to align the provisions relating to cost inflation index to the proposed base year. It means that if you purchased a property in 1987, after the amendment you can either consider your actual purchase price or the FMV in the year 2001 as your acquisition cost. This will limit the tax payment on appreciation in the price of the property till 2001. Hence, your capital gains tax liability will get decreased. Currently, the cost of inflation index for the FY 2016-17 is 1125. These amendments will take effect from 1st April 2018.
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Deduction of TDS of 5% for rent above Rs 50000
In order to increase the scope of TDS, the government has amended certain clause to insert a new section of 194-IB in the I-T Act. This section concludes that an individual or a HUF (other than those who are covered under 44AB of the Act), responsible for paying any income by way of rent exceeding Rs.50000 for a month or part of month during the previous year, will have to deduct an amount equal to 5% from the total rent as income-tax. The following amendment will take effect from 1st June 2017.
If you are paying rent of more than Rs 50,000 per month, then in such a case you need to deduct TDS of 5%. This means to say, if the rent is Rs 100,000, you will pay Rs 95,000 and deposit the TDS of Rs 5000 with IT department. TDS can be deposited once in a year which can help in some way around.