Finance Minister Arun Jaitley’s third Union
Budget focused on continuing the present course of fiscal consolidation as well
as bring about equity to tax system. While previous budget had a lot to offer
to the middle class, this year’s budget was more inclined towards low-income
households. Government’s proposal to increase tax rebate, waive off service tax
on homes and increase deductions on rent paid etc. are clearly meant to benefit
economically weaker segment of our society. However, the biggest jolt to
salaried section was the tax levied on the interest earned on EPF; this will
mainly hit the middle class and people with comparatively higher salaries.
Let’s look at some of the important implications of this year’s budget on
salaried class:
Extension
of time period for availing Rs.2 lakh deduction: Earlier, a borrower had to
complete the possession/construction of the property within three years of
taking the home loan, failing which the borrower could only claim a deduction
of just Rs.30000. As most of the developers failed to deliver the project
within the three years’ time period, borrowers were deprived from claiming the
entire Rs.2 lakh limit under Section 24(b). The decision to increase the time
period from 3 years to 5 years is a good move as it will allow more people to
avail the entire deductions. However, the government should have spared the
borrower for cases where the delay in possession is caused at the developer’s
end.
Increase
in tax rebate for individuals with net income less than Rs.5 lakh: The biggest
gift for small tax payers in this years’ budget is the proposal to increase the
tax rebate for individuals with net income of Rs.5 lakh or less. At present,
the tax rebate for such individuals under Section 87A is Rs.2000, which has
been increased to Rs.5000 in this year’s budget. Thus, if your taxable income
is Rs.5 lakh in the next financial year, you will additionally save Rs.3090 in
taxes. This is a welcome move as the proposal is expected to benefit more than
2 crore tax payers.
Additional deduction of Rs.50000 for interest
paid on home loans lower than Rs.35 lakh: Another welcome move in this year’s
budget is the introduction of an additional deduction of Rs.50000 for interest
paid on home loans, over and above the existing Rs.2 lakh deduction available
under Section 24b. However, this additional deduction can only be claimed by
first time home buyers availing home loans of Rs.35 lakh or less and for homes
valuing Rs.50 lakh or less. This move will encourage people to buy homes and
infuse much-needed demand in the housing sector.
Tax deduction on house rent
paid increased: The proposal to increase the tax deduction allowed on house
rent paid from Rs.24000 to Rs.60000 gives the self-employed classes a reason to
cheer. This deduction can also be availed by employees who do not receive HRA
as part of their salary component.
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