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  1. Deduction under Sec 80GG a relief for self-employed

Deduction under Sec 80GG a relief for self-employed

Overall, it is a balanced Budget with a pragmatic approach, and if the taxability of EPF withdrawal is rolled back, it would be a win-win for all

By: | Published: March 4, 2016 12:08 AM

Every individual looks for an increase in the basic exemption limit to comfort his pocket, but this year’s Budget did not change the slab rates. The finance minister expressed his concern that benefit of basic exemption limit is mostly availed by the middle class and hence instead of increasing the basic exemption limit, the rebate under Section 87A has been increased from Rs 2,000 to Rs 5,000, which will benefit small tax payers.

The Budget has given marginal relief to the self-employed by raising the deduction under section 80GG from Rs 24,000 to Rs 60,000 to bring them on a level playing field with salaries taxpayers receiving House Rent Allowance (HRA). However, the new limit is still not in line with the sky-high rentals in metro cities and is negligible considering the deduction on account of HRA available to salaried persons, which can be substantial in cases where the salary and its HRA component are high.

Every individual dreams of owning his own house, and if there is additional tax benefit attached to it, the dreams becomes attainable sweet dream. Working towards the aim of ‘housing for all’, an additional deduction of R50,000 was introduced vide Finance Act 2013 and the same has now been re-introduced. The additional deduction would be allowed for the first time home buyers, provided the amount of loan is up to R35 lakh and the value of property does not exceed R50 lakh. Additionally, it has been provided that the allowance shall be available till the date of repayment of loan, instead of the erstwhile provision of two years. This is a welcome proposal, especially considering the gloomy state of real estate sector in India.

In an attempt to giving partial relief to those contributing to NPS, budget has given exemption of 40% at the time of withdrawal in order to encourage retirement savings and to bring parity amongst NPS and other retirement saving plans i.e. EPF and PPF. However, the FM’s proposal to apply the same norm to EPF withdrawal on corpus created after April 1, 2016, has come as a shock to the salaried class, who were enjoying a complete tax exempt status, free to use their retirement savings as they wished, say for children marriage, education, retirement home etc. Considering the outrage of the salaried class of taxpayers, the revenue secretary had clarified that PPF shall continue to enjoy the EEE status and only the interest component of the 60% contribution to EPF post April 1, 2016 shall be taxed. It has to be borne in mind that retirement savings are needed by the individuals in their sunset year to meet healthcare cost.

Considering that the proposal is not with an attempt to mobilize revenue for the FM’s kitty, ideally the proposal to tax PF withdrawals should be rolled back and its tax structure should remain status-quo i.e. EEE.

The proposed amendment to tax dividends in excess of R10 lakh in the hands of the recipients will amount to double taxation of the same sum of money. While this appears uncalled for, it will certainly help remove the vertical inequity of high dividend income earners being subjected to tax at the concessional rates of 15% as opposed to the maximum chargeable rate of 30%. In order to bring parity and reduce hardship, but at the same time encouraging listing of shares and securities to bring them under regulator’s lens, the period of holding of unlisted securities to qualify as long-term has been reduced from 36 months to 24 months. Overall, it is a balanced budget with a pragmatic approach, and if the taxability of EPF withdrawal is rolled back, it would be a win-win for all.

The writer is managing partner, Nangia & Co

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