BANKBAZAAR TIP CENTRAL
How is your EMI calculated?!
At a constant interest rate, EMI is constant month on month. The change happens in the way the principal and interest is added every month! In the initial years of loan repayment principal is lesser than the interest component of the EMI. In the latter years the reverse is true!
Expectations of small tax payers from budget!
While India’s Annual Budget is important to understand the Government’s planned revenue and expenditure, it is equally important to the common man to understand how his finances shape up as a result of this event. Small Tax Payers are typically the salaried class and small entrepreneurs, who are the first to be hit in case of any negative provision in the Budget.
The salaried class ends up paying all taxes religiously on the back of compulsory deductions by their employer. Therefore, it is but natural that a majority of expectations relate to the tax front. Apart from tax provisions, there are a few other areas where expectations are high from this section of the society. The following are some important expectations of small tax payers from this year’s budget:
Increase in Income Tax initial exemption limit and allowances: The current initial exemption limit of Rs. 2 lakhs is viewed to be low, considering that inflation has continued to remain stubbornly high. It is desired that the Government increases this limit to Rs. 3 lakhs for men assesses and Rs. 3.5 lakhs for women assesses, in order to increase disposable income in the hands of taxpayers. Additionally, allowances like transportation allowances (Rs. 800 per month), education allowance (Rs. 100 per month per child upto 2 children), hostel allowance (Rs. 300 per child upto 2 children) are limits defined in the Income Tax Act years earlier. It is felt that these allowances should also be revised upwards to reflect current price levels.
Reimbursement limit on medical expenses: Currently pegged at Rs. 15000 per annum, it is expected that this limit should also be increased, taking into consideration escalating healthcare costs.
Home Loan Repayment of Principal and Interest: Currently principal repayment of home loan is included under Sec 80C deductions. This section is one of the most used sections by taxpayers, and is mostly fully utilized, without even including the principal amount. Hence the amount deducted towards principal often doesn’t qualify for tax deduction. There is a wide demand that principal repayment should be included under a separate provision of the Income Tax Act to get additional benefits. Another aspect of home loan is interest repayment. Interest repayment eligible for tax deduction is restricted to Rs. 1.5 lakhs per year, which is deductible under Sec 24(b) of the Income Tax Act. Since real estate prices have sky rocketed over the past few years, interest paid per year far exceeds this limit every year for most home buyers. It is hoped that an increase in this limit will be announced in this year’s Budget.
Increase in investment limit under Sec 80C: Income Tax Act’s most popular section Sec 80C’s limit has been fixed at Rs. 1 lakh for many years now. With the number of investment avenues included under this section being plenty, it is very easy for a person to exhaust this limit in a year, by investing in various eligible instruments. The common man expects that this limit should be increased at least in this year’s budget to a more realistic amount.
Infrastructure bonds inclusion: These bonds, which had tax exemption upto investments worth Rs. 20,000 were removed from the Income Tax purview. It is hoped that this provision is restored in this year’s budget, as the infrastructure sector is also is need of substantial funds for expansion.
Taxation on National Pension Scheme investments: Income from the National Pension Scheme is currently taxed on an EET (Exempt-Exempt-Taxable) system, which means withdrawals are taxed even though contributions and returns to the NPS are not taxed. Changing the status to EEE (Exempt-Exempt-Exempt) system means tax exemption will be available at all three stages – investment, appreciation and withdrawal. This will go a long way in enhancing returns of the retired who have invested in this scheme.
Increasing the exemption limit on interest of savings bank accounts: The interest you earn on savings bank accounts is exempt from tax upto Rs. 10000 per year. If this limit is increased to a higher amount, it will help in reducing tax outflow for those who maintain high balances in Savings accounts.
Launching tax-friendly equity schemes: The Rajiv Gandhi Equity Savings Scheme which was introduced last year provides tax benefits to first time investors in the equity markets. However, this investment is restricted to investors with an annual income of less than Rs. 10 lakhs. Increasing this limit beyond Rs. 10 lakhs and introducing more such schemes will help in benefiting more small tax payers.
The above are a few expectations from the Budget by the small tax payers. With the current high inflation in the economy combined with poor growth, there is a need for the Budget to include provisions which can increase disposable income in the small tax payers’ hands.