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NPS could been made fully tax exempt
March, 03rd 2016

India is surging ahead at over 7 per cent growth and we need strong measures to facilitate and maintain this growth. Budget 2016-17 provides relief to small taxpayers to some extent, though the salaried class has very little to cheer about.

Efforts to Bring Equity

The budget tries to change the paradigm and bring equity between the rich and the poor which is beneficial in the long run. It can make India a more equity-based country with progressive taxation methodology.
While surcharge on super-rich (people earning more than Rs 1 crore) was increased from 12% to 15%, the lower income group (people earning below Rs 5 lakh) was given exemptions. The ceiling of tax rebate available under Section 87A of the Income Tax Act has been raised from Rs 2000 to Rs 5000. This translates into more money in the pocket of common man and is definitely something to cheer for.

Tax on Retirement Plans

This announcement was the biggest surprise of 2016 budget. Government managed to align all retirement plans by exempting tax on withdrawals of up to 40 per cent on National Pension Scheme (NPS), as well as by making other recognised provident funds such as Employees’ Provident Fund (EPF) partially taxable. The government has proposed to tax 60% of interest accumulated on contributions made towards EPF after April 1, 2016. This 60% can be exempted from tax should you choose to invest it in pension annuity schemes.

The decision to partially tax EPF is a major setback for the middle class salaried people. Often, this is the only lifetime corpus that they build to be adequately used on retirement or on major life events. Taxation means a big dent in the retirement corpus.

One should remember that though these measures look stringent currently but they were required to bring all the retirement plans at par with each other.
Regarding NPS, it would have been better if the entire 60% of the corpus which can be currently withdrawn could come under the EEE (exempt, exempt, exempt) regime. This would have made NPS a more cogent system.

Tax Provisions for Housing

Owning a house is one of the biggest dream of every middle class family. A big boost is given to middle class dreams of owning a house.

A deduction of Rs 50,000 has been proposed for interest on home loans for the first time home buyers. A cap of Rs 35 lakhs have been put on the loan amount and the value of the property cannot exceed Rs 50 lakhs.
While this is a great initiative to ensure that every middle class person has a roof above his head, there is only one catch – decent houses in metro cities like Delhi, Mumbai and Bangalore might not come within Rs 50 lakhs. Well, for Tier II and Tier III cities this is definitely a boon and will work as a motivation for those who kept their plans on hold owing to rising prices.

The government also proposed to increase 3-year deadline to 5-years for availing Rs 2 lakh deduction available under Section 24(b). Earlier, borrower could claim the entire limit only if he gains possession of the property within 3 years of taking home loan. Else, he was forced to settle for rather lower deduction of mere Rs 30,000.

This decision will allow more people to avail the entire deductions. However, home loan borrowers should not be penalised for delay in part of realtors should it exceed beyond 5 years. The borrower is at loss in such a case for no fault of theirs.

Along with this, service tax is waived for purchasing a house less than 60 square feet. This will ensure that even people in the lower income group can realise their dreams.

Again,providing for higher deduction on house rent payable from Rs 24,000 to Rs 60,000 per annum has brought smiles to the faces of tax payers, more so for the self-employed individuals since this clause is applicable for people whose HRA is not part of the salary. With house rent rocketing sky high, these initiatives was much required.

Clearly, there was social empathy in budget 2016. Finance Minister, Arun Jaitley has ensured that it acts in favour of small taxpayers, first time house owners, people who don’t get HRA and people of low income group.

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