The 2016 Union Budget presented by Finance Minister Arun Jaitley was mostly a disappointment for the salaried class. There were no tax breaks, little additional tax deductions, and several extra taxations were introduced on commodities and services.
Additional Tax Deductions In Budget 2016:
Here are some of the tax sops made available in the 2016 Union Budget:
- Those who do not get house rent allowance (HRA) from their companies can now avail HRA exemption of up to Rs. 60,000. Earlier, they could only get exemption up to Rs. 24,000.
- There is an additional tax reduction of Rs. 50,000 on interest paid for first-time home buyers. But to avail this, the house has to be bought in 2016-17, the house loan should be less than Rs. 35 lakh and the cost of the house should be less than Rs. 50 lakh.
- Under Section 87A, people with an annual income of less than Rs. 5 lakh can claim a tax rebate of Rs. 5,000 instead of Rs. 2,000 on the annual tax payable.
Additional Tax Components in Budget 2016:
Here are some extra taxes added to the regular ones on goods and commodities:
- Service tax, which currently stands at 14.5% with the inclusion of Swachh Bharat Cess, will increase to 15% from June 1, 2016. This is because a Krishi Kalyan Cess of 0.5% will be added to it. This will affect the bills on your restaurant, air travel, telecommunication, internet and other services.
- An infrastructure cess has been introduced on cars, keeping in mind the pollution and traffic problems in cities. The cess is 1% on small petrol, LPG and CNG cars, 2.5% on diesel cars of a certain capacity and 4% on other high-engine capacity vehicles and Sports Utility Vehicles.
- Excise duty on cigarettes and tobacco products has been increased by 10 to 15%
- Excise duty on jewellery it has gone up by 1% without input tax credit and 12.5% with input tax credit
- Branded readymade garments and other textile items with a retail sale price of Rs. 1,000 or more will be levied a 2% excise duty without input tax credit or 12.5% duty with input tax credit.
Footwear and sanitary napkins, on the other hand, will be cheaper due a reduction in excise/customs duty on the raw materials required for their production. Hybrid electric vehicles will also benefit from concessions on excise duty.
Impact On Pension Instruments:
One of the biggest decisions on the 2016 Budget was to bring the National Pension Scheme (NPS) and Employees Provident Fund (EPF) at par with each other. EPF was earlier a ‘Triple E’ product – with tax exemption on deposit, withdrawal and interest, and NPS was not. This budget proposed to have both NPS and EPF taxed on similar terms. Up to 40% of NPS and EPF (and other recognised superannuation fund and provident fund) withdrawals at the time of retirement will be tax-free, while the remaining 60% will be not be subject to tax only if they are re-invested in an annuity plan. The new rules also made it impossible for employees to withdraw their entire EPF amount after 2 months of employment, and they could withdraw only their contribution to the EPF and the interest accrued on it and not the employer’s contribution. This employer’s contribution can be withdrawn only after the standard retirement age of 58. The aim of these moves was to create a pension-centric savings outlook among the people.
However, the decision backfired, and a hue and cry was made by the salaried class, many of who depend on the EPF withdrawals to meet their regular requirements in order to avoid taking a loan, on these rules. Following this, the government withdrew these rules and kept them in abeyance until July 31, 2016. A similar U-Turn occurred when the government initially reduced the interest on EPF to 8.7%, and in less than a month, was forced to hike it back to the previous rate of 8.8%.
The 2016 Budget did, however, give the following benefits on annuity plans:
- There will be no tax on the annuity fund that is transferred to the legal heir of a pensioner who is no more.
- Service tax on Single premium Annuity (Insurance) Policies has been reduced from 3.5% to 1.4% of the premium paid.
All in all, the 2016 Union Budget created more controversies than benefits for the salaried class. However, the benefits announced this time would be helpful to those who earn less than Rs. 5 lakh annually. We shall hope for better advantages for the salaried class in the next budget.