January is coming to an end, and it just one month to go for Budget 2013.
No wonder there are many rumors going around about the various new proposals for the annual budget!
Here are the details of some of the things that would possibly be included in Budget 2013.
Increase in Section 80C Limit
This is one of the most exciting proposals, and should certainly bring cheer – and more money in your pockets – if it is actually included in the budget.
As you know, Section 80C describes various investment avenues that are tax deductible. Right now, investment up to Rs. 1 Lakh is deductible from your income for calculating income tax.
(For complete details of Section 80C, please read “Saving Income Tax – Understanding Section 80C Deductions“)
There are rumors going around that the deduction limit for Section 80C investment would be increased. There is no indication of the exact amount, but it might be increased by Rs. 25,000 or Rs. 50,000.
There is a possibility that this additional limit might be earmarked only for investment in pension products offered by mutual funds.
Increase in Income Tax for the “Very Rich”
The government is trying very hard to clean up its act, and make its finances better. Once sure shot way to do this is to increase income tax rates.
However, Mr. P. Chidambaram, our current finance minister, has specifically said that the income tax rates would not be changed – they would stay at the current rates of 10%, 20% and 30%.
(Please read “Income Tax (IT) Slabs / Brackets and Rates” to know the latest income tax slabs and rates)
So there is a high chance that a special surcharge would be applicable for the “very rich”.
And what does “very rich” mean? No one knows as of now. But it might mean people with an income of more than Rs. 25 Lakhs per year.
We would have to wait and watch to know the exact limit, and the exact amount of surcharge!
Rajiv Gandhi Equity Savings Scheme (RGESS) Under Section 80C
The Rajiv Gandhi Equity Savings Scheme (RGESS) might also be brought under the Section 80C umbrella.
Currently, there is a separate limit of Rs. 50,000 for RGESS. So inclusion of RGESS in Section 80C might go hand-in-hand with an increase in the Section 80C limit.
There is also a possibility that RGESS would be made available to all equity investors, and not just “new” equity investors.
(To know more about RGESS, please read “Rajiv Gandhi Equity Savings Scheme – Save Tax Using RGESS“)
Mr. Chidambaram has always been in favor of simplified tax regimes – where tax laws do not have multiple deductions, exemptions and rebates.
He has been instrumental in simplifying personal income tax, and inclusion of RGESS in Section 80C would certainly be high in his priority list.
No Long Term Capital Gains Tax on Bonds
Currently, there is no long term capital gain (LTCG) on shares. However, this is not then case for bonds.
(Please read “Long Term and Short Term Capital Gain – Income Tax Calculation” for full details)
It is rumored that the LTCG on corporate and infrastructure bonds would be done away with to bring them in par with equities.
If this proposal is implemented, the government might discontinue the issue of tax-free bonds by government-owned infrastructure companies like RFC, IDFC, etc.