M Y B A N K L E T S M E S E N D A T E X T M E S S A G E A N D I T ’ L L T E X T B A C K W I T H M Y B A L A N C E . I T ’ S A C O O L F E A T U R E B U T I D I D N ’ T T H I N K T H E L O L W A S N E C E S S A R Y

Take a home loan, take home moreTEAM TOI

Why rent when you can buy and beat tax? The Budget

made purchase of homes more attractive, at least for the middle class, by raising deduction against inter-est payment on home loan from the taxable income to Rs 2,00,000 from Rs 1,50,000. This will enable a home buyer to save an additional amount of Rs 15,450 from his or her tax liability.

It will also, in effect, low-er interest rates for home loans. So say that one has taken a loan of Rs 25,00,000 to buy a house at an inter-est rate of 10% for 20 years, the EMI will be around Rs 24,125, which adds up to Rs 2,89,500 annually. Out of this, Rs 2,50,000 will go to-wards interest payment and the rest — Rs 39,500 —will be used for principal repay-ment. Post-Budget, the buy-

er can avail a deduction of Rs 2,00,000 from his or her taxable income as the in-terest payment will be Rs 2,50,000 in the first year. This will enable the buyer to save Rs 61,800 from tax liability if his or her income is in the highest tax bracket of 30.9%. The net tax outgo after adjusting for the sav-ings in tax will be only Rs 1,88,200. As the loan amount is Rs 25,00,000, the net inter-est rate will work out to only 7.53%. But if the borrowed amount increases, the net interest rate will increase. So if the loan amount is Rs 1,00,00,000 at 10% rate, the net interest rate will be 9.38%. This is because the tax benefit remains at Rs 61,800 only.

Experts say that in big metros like Delhi, Mum-bai and Bangalore where most flats cost upward of Rs 1 crore, it would make lit-tle difference to a buyer.

Pankaj Kapoor of prop-erty research firm Liases Foras said the relief was marginal for those who live in tier-one cities. “The rebate should have been much high-er,’’ he said. “In Mumbai, the average cost of a flat is Rs 1.2 crore. On this, the monthly EMI itself would be around

Rs 1 lakh, of which 80% goes towards interest. This exemption is not enough to promote housing in category one cities,’’ he said.

Property consultant Ashok Narang said the move would benefit the sala-ried class to some extent. “Flat buyers in two-tier cit-

ies where prices are com-paratively much lower will feel the difference,’’ he said.

Abhisheck Lodha, man-aging director of Lodha Group, said the increase won’t change anything for flat buyers in big cities like Mumbai. “But it is an incre-mental difference for homes in the range of Rs 25 lakh to Rs 50 lakh, which are avail-able in the Mumbai metro-politan region,’’ he said.

Added Pranay Vakil of Praron Consultancy, “If you want to encourage housing, no matter what interest you are paying, it should be ex-empted from taxation. It’s a basic need.’’ The industry had demanded that the limit be hiked to at least Rs 5,00,000, which could have covered repayment of loan of Rs 100,00,000 for quite some time.

Another Budget proposal allowing corporate social responsibility in slum rede-velopment was welcomed by

developers like Boman Irani, who said it would have a big impact in Mumbai, where half the population lives in shanties. “Big companies could pump in at least a cou-ple of thousand crores in slum projects,’’ he said.

The relaxation in FDI norms for real estate would also open up a new stream of cheaper money for devel-opers, said experts. The FDI limit has been reduced from 50,000 sq m to 20,000 sq m and minimum investment from $10 million to $ 5 million.

“The finance minister’s vision for housing is the first positive signal that this government intends to lis-ten to the real estate indus-try,’’ said Irani.

The tax pass through status for Real Estate In-vestment Trusts (REITs) to avoid double taxation will bring in more investments to the sector, said industry experts.

FM Raises Deduction On Interest Payments; Max Benefit For Buyers In Tier-Two Cities

The macro economic backdrop to the Modi government’s maid-

en Budget was quite chal-lenging. Slowing growth, high inflation, global eco-nomic uncertainties and a pressing need to fix financ-es were indeed formidable factors. On top of this lay the burden of huge expecta-tions and the fact that the government had barely six

weeks to prepare. Given this, the finance minister has done a splendid job.

He has resisted the temptation to increase the fiscal deficit, and accepted the daunting challenge of achieving 4.1% this year, going down to 3.6% and 3% in subsequent years. He correctly identified that today’s deficit is tomor-row’s tax burden. The fiscal strategy is to revive growth through various impulses,

and harvest the consequent tax revenue to keep the defi-cit in check.

The impulse has been provided through measures that affect infrastructure and manufacturing, espe-cially for small and me-dium enterprises (SMEs). The FM has flagged off a major fund for rural road-ways, several measures to boost low-cost housing and rural housing, support for the national highway programme, 16 new port projects and simplification of investments. All these will have a multiplier effect on growth.

The tourism initiatives will contribute to job crea-tion. The setting up of a Rs 10,000-crore venture fund for SMEs is also very welcome. The extension of excise relief for manufac-turing is also welcome.

The Budget also had several reform-oriented measures, especially for the financial sector. It also detailed measures for the marginalized, the elderly and those who are different-ly abled. All in all, a great beginning of a long journey.

WHAT IT MEANS FOR THE TAXPAYER THE TIMES OF INDIA, NEW DELHIFRIDAY, JULY 11, 201402 2014UNION

BUDGET

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TOPK M Birla I CHAIRMANAditya Birla Group

TEAM TOI

Finance minister Arun Jaitley has tried to put a little more money into

taxpayers’ pockets. He raised the exemption limit by Rs 50,000, that is from Rs 2,00,000 to Rs 2,50,000, for all taxpayers below the age of 60. For senior citizens, the exemption limit has been in-creased from Rs 2,50,000 to Rs 3,00,000 for all income groups.

For those whose income is between Rs 2,00,000 and Rs 5,00,000, the exemption limit hike is Rs 30,000 and not Rs 50,000 as in 2013-14. The previous government had al-lowed a deduction of Rs 20,000. This meant that income up to Rs 2,20,000 was tax exempt for those earning up to Rs 5,00,000.

In 2014-15, however, income up to Rs 2,50,000 will be exempt.

This means a benefit of Rs 5,150 to those whose in-come is between Rs 5,20,000 and Rs 1 crore. But for those whose income is more than Rs 1 crore, the net benefit will only be Rs 5,665 because 10% surcharge levied.

The exemption limit has been increased six times since 1997-98. Ten years back in 2004-05, the exemption limit was Rs 50,000.

If it is adjusted for infla-tion, the exemption limit should have been kept at Rs 92,700 only.

In the direct tax code, which has suggested reforms in the tax structure, it is pro-posed to increase the exemp-tion limit to Rs 5,00,000.

Keeping deficit in check will

boost economy

SAVING GRACEGainOld Tax Liability New Tax Liability

Up to 2.2 lakh — — —

2.5 lakh 3,090 Nil 3,090

3 lakh 8,240 3,090 5,150

5 lakh 28,840 23,690 5,150

10 lakh 1,33,900 1,28,750 5,150

50 lakh 13,69,900 13,64,750 5,150

1 crore 29,14,900 29,09,750 5,150

1.5 crore 49,05,890 49,00,225 5,665

2 crore 66,05,390 65,99,725 5,665

5 crore 168,02,390 167,96,725 5,665

Income

Figures in

Hindus believe a dip in the holy Ganga washes away sins, and there might be some science behind the faith. East India Company ships used Ganga water for drinking during their three-month voyage

to England. The water apparently stayed fresh. Some experts have talked of the river’s “self-cleansing” properties. Organic material exhausts a river’s oxygen supply putrefying the water. But in the Ganga, an unknown substance kills bacteria. Ganga’s oxygen levels are 25 times higher than any other river

GANGA, A RIVER SUTRA GLORIOUS CLEANSER

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Small savings cleared for take-off by 80C TEAM TOI

In a bid to boost household savings, finance minister Arun Jaitley has increased the limit on invest-

ments under 80C, that are exempt from income tax, from Rs 1 lakh a year to Rs 1.5 lakh.

These include investments in Em-ployees Provident Fund (EPF), Pub-lic Provident Fund (PPF), life insur-ance policy with a lock-in period of three years, equity-oriented mutual funds, Kisan Vikas Patra, National Savings Certificate and fixed depos-

its with five-year term among others.For those with taxable income

above Rs 10 lakh, where income tax at the rate of 30.9% is levied, the in-crease in the investment limit will allow maximum savings of Rs 46,350 — against the earlier Rs 30,900.

Jaitley specifically mentioned that the entire investment limit of Rs 1,50,000 could be exhausted in a PPF account with a tax-free return of 8.5%. As one can avail the ben-efit of deduction up to the invested amount from the taxable income and the final proceeds are also tax-

free, the 8.5% tax-free income is equivalent to almost 15.7% pre-tax return which is the highest secured return one can get in the system.

“To address the concerns of de-cline in savings rate and improving returns for small savers, I propose to revitalize small savings,” Jaitley said. However, even the new raised limit on investments will be ex-hausted with just EPF deduction, so there is little scope for additional savings. It was expected that the lim-it would be increased to Rs 5 lakh as suggested in the direct tax code.

Grow your money with kisan bonds

TEAM TOI

F inance minister Arun Jaitley has reintroduced small savings schemes

like Kisan Vikas Patra (KVP) and National Savings Certifi-cate (NSC).

KVP, a bond-like instru-ment in which the invested amount doubles in a given period, was discontinued by UPA II. In the last scheme, the period in which the amount doubled was eight years and seven months. For the new scheme, the interest rates are yet to be announced.

The amount invested in KVP can be deducted from the taxable income, reducing the liability of an investor. KVPs were popular in villages as they were sold at post offices, reaching far-flung areas.

Even though it is named Kisan Vikas Patra, anyone can invest in it. The reintroduction of KVP is expected to boost savings. Before it was with-drawn, KVP accounted for one-fourth of the total inflows into all post office schemes. Though the maturity period is mentioned on the bond paper, money can be withdrawn after two-and-a-half years.

The government will also issue NSC named after the girl child to specifically cater to the requirements of educa-tion and marriage of girls.

Ram

Tax lift goes down, you’re up one floor

DREAM DEDUCTION

POCKET MONEY

Illustrations: Ajit Ninan; Editorial Support: Surya Bhatia

,

Professor in College 12L

The slew of IITs and IIMs promised by the finance minister is great news for him but the professor has little else to look forward to in the Budget. Most of what he saves on account of the increased cap

under 80C will probably go to fund the smoking habit he hasn’t been able to kick all these years. And in more bad news, his students will be able to afford better smartphones to play with in class

Bank Manager

He was happy to watch the World Cup on his new LEDbut the bank manager’s ruing having bought it before the Budget. Fortunately, his housing loan is fairly recent and he gets an increased deduction on interest. He can hope to save upwards of Rs 15,000 a year, which could go towards his retirement nest

ASSUMPTIONS➤ Purchased an apartment with a total loan of 40 lakh at 10.5% ROI, repayment over 15 years

8LPre

BudgetPost

BudgetBasic — —HRA/CLA — —Conveyance Allowance — —Medical Allowance — —LTA — —Special Allowance — —Gross Salary/Pension* 800,000 800,000Gross Taxable Salary 800,000 800,000 Income from Business & Profession — —Income from LTCG-Equity 25,000 25,000Exempt LTCG-Equity u/s 10(38) (25,000) (25,000)Interest on Housing Loan (150,000) (200,000)Interest Income 14,500 14,500 Gross Taxable Income 664,500 614,500 Less: Deductions — —Investments u/s 80C 25,000 25,000 RGESS 25,000 25,000 Mediclaim u/s 80D/ Maintenance of Handicapped Dependent u/s 80DD 15,000 15,000

Interest Deduction 10,000 10,000 Donation u/s 80G — —Net Taxable Income 589,500 539,500 Tax on Above Income 47,900 32,900Add: Surcharge — —Add: Education Cess 958 658 Secondary & Higher Education Cess 479 329

Total Tax Payable 49,337 33,887

PreBudget

PostBudget

Basic 600,000 600,000HRA/CLA 300,000 300,000 Conveyance Allowance 9,600 9,600Medical Allowance 15,000 15,000 LTA 10,000 10,000Special Allowance 265,400 265,400 Gross Salary/Pension 1,200,000 1,200,000Gross Taxable Salary 1,175,400 1,175,400 Income from Business & Profession — —Income from LTCG-Equity — —Exempt LTCG-Equity u/s 10(38) — —Interest on Housing Loan — —Interest Income — —Gross Taxable Income 1,175,400 1,175,400 Less: Deductions — —Investments u/s 80C 100,000 150,000 RGESS — —Mediclaim u/s 80D/ Maintenance of Handicapped Dependent u/s 80DD 15,000 15,000

Interest Deduction — —Donation u/s 80G — —Net Taxable Income 1,060,400 1,010,400 Tax on Above Income 148,120 128,120 Add: Surcharge — —Add: Education Cess 2,962 2,562Secondary & Higher Education Cess 1,481 1,281

Total Tax Payable 152,564 131,964

THE TIMES OF INDIA, MUMBAIFRIDAY, JULY 11, 2014

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