India’s Finance Minister Shri P. Chidambaram presented the Union Budget 2013 – 2014 on 28th February 2013.
Here is a detailed, in-depth analysis of the provisions in the budget and how they are likely to affect you – both positively and negatively.
Note: This article would be updated in case more clarity emerges on some of the new budget provisions. So, do keep visiting it to keep updated about the budget!
Income Tax Slabs and Rates
There is no major change here. The income tax slabs and the tax rate for each slab remains the same as last year. The education cess also remains at 3%.
You can find out the latest tax slabs and rates at “Latest Income Tax (IT) Slabs / Brackets and Rates“.
Income Tax Credit
The only new thing that has been introduced is a tax credit of Rs. 2,000 for people with a taxable income of up to Rs. 5,00,000.
It would be a tax credit for people having an income up to Rs. 5,00,000. The the amount of the credit would be Rs. 2,000, but not more than the tax liability.
Any what exactly is a tax credit?
Well, you would calculate your income tax liability in the usual way, and arrive at the “tax payable” figure. A tax credit would reduce this amount. In effect, it is like you have already paid a tax of Rs. 2,000.
Example 1: If you need to pay tax of Rs. 9,000, a tax credit of Rs. 2,000 would mean that you need to pay only Rs. 7,000 as tax. But if you need to pay tax of Rs. 1,500, the tax credit would be limited to Rs. 1,500.
My comment: Although the tax credit would save you up to Rs. 2,000, it is a step in the wrong direction. It was Mr. Chidambaram who steered our tax system towards simplicity and did away with many rebates, exemptions and deductions. Introducing something like this – along with exemption of bank interest in last year’s budget – only complicates things. It would have been much better to just change the tax slab,
Surcharge on the Super Rich
The budget has also introduced a surcharge of 10% for people having a taxable income of Rs. 1 Crore or more per year.
Income Tax Benefit of Home Loan Increased
In a move that would greatly benefit middle class people, an additional deduction of Rs. 1,00,000 of home loan interest has been allowed for home loans up to Rs. 25,00,000 for first time home buyers.
This deduction can be taken only in 1 year (2013-2014), but if the full limit (of Rs. 1 Lakh) is not utilized in a year, the remaining amount can be carried forward to the next year (2014-2015). This carry forward is allowed only for 1 year.
Example: You have an interest of Rs. 65,000. You can deduct this interest from your income, thus reducing your tax liability. But you would still have Rs. 35,000 left from the limit. This means that you can deduct an interest up to Rs. 35,000 in the next year.
In effect, you can say that this is a lifetime limit per home loan!
Important note: Please note that this is an additional limit for home loan interest deduction. This is available over and above the normal home loan interest deduction available under section 24.
For full details of home loan income tax benefits, please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage“.
Rajiv Gandhi Equity Savings Scheme (RGESS)
The budget has brought about some positive changes in the RGESS:
- Apart from some listed equity shares, now, you would also be able to invest in mutual fund units
- Instead of investing the amount in 1 year, you would be able to spread the investment over 3 consecutive years. So even if you are short on cash, you can benefit by RGESS by investing smaller amount in 3 years.
- The income limit for RGESS has been increased from Rs. 10 Lakhs to Rs. 12 Lakhs
For complete details on RGESS, please read “Rajiv Gandhi Equity Savings Scheme – Save Tax Using RGESS“.
Duty Free Import of Gold
The limit for duty free import of gold by passengers has been increased – men are allowed to bring Rs. 50,000 worth of gold jewellery and women are allowed to bring Rs. 1,00,000 worth of gold jewellery duty free.
More Insurance Penetration
All cities and town having a population of 10,000 or more would have a branch of Life Insurance Corporation (LIC).
Such towns would also have a branch of one of the public sector general insurance companies.
All Women Bank Public Sector Bank
A new, all-women bank would be started as a public sector bank. all its employees would be women, and it would extend loans only to women.
This would have hardly any impact on you or anyone else. A bank like this doesn’t provide any additional benefit or extra services, and is therefore completely unnecessary.
This is just a gimmick that is politically correct!
Other Noteworthy Things
Here are some of the other things you can expect as a result of Budger 2013 – 2014:
- The Reserve Bank of India (RBI) would come out with inflation indexed bonds and inflation indexed National Savings Certificates (NSC) that would protect your money from getting eroded by inflation.
- Tax free bonds of up to Rs. 50,000 Crores would be issued in FY 2013 – 2014. So, you would have many opportunities to grow your money completely tax free!
- The Securities Transaction Tax (STT) has been reduced marginally for various categories of transactions. Its impact would be insignificant for most retail investors.
- A new Commodities Transaction Tax (CTT) has been introduced for trades in all non-agricultural commodities. Again, the impact on your is going to be insignificant.
- A Tax Deducted at Source (TDS) of 1% has been introduced for land deals of more than Rs. 50 Lakhs. This is however not applicable on agricultural land deals.
- The import duty on set top boxes has been increased, which means that you would end up paying a little more for your set top box.
- The excise duty on cigarettes, Sports Utility Vehicles (SUV) and marble has been increased, making them costlier.
- The import duty on most mobile phone has been increased – you can expect a marginal increase in their prices.
- Service tax would not be applicable on all air conditioned restaurants, so expect your restaurant bills to increase by 12%!