Finance Minister Arun Jaitley's maiden budget has lived up to BJP's promise of ushering in achhe din — at least for the average Joes and Jyotsnas. The basic exemption limit for ordinary taxpayers has been raised from Rs 2 lakh to Rs 2.5 lakh.
For senior citizens, the limit for income on which they don't have to pay tax has been raised from Rs 2.5 lakh to Rs 3 lakh.
There is no change in the Rs 5 lakh tax exemption for very senior citizens above 80. The budget has also enhanced the annual deduction available under Section 80C from Rs 1 lakh to Rs 1.5 lakh. This was a long-pending demand of taxpayers.
The Rs 1 lakh limit was set nearly a decade ago and quickly gets exhausted due to the multiplicity of investments included under Section 80C, a provision that allows investors to reduce their tax liability. The proposed changes can lead to big tax savings for middle-class taxpayers. Those earning more than Rs 10 lakh a year stand to save up to Rs 20,000 annually in tax.
Raising the basic exemption limit by Rs 50,000 will result in a tax saving of Rs 5,000. A Rs 50,000 increase in the investment limit under Section 80C will help save another Rs 15,000. However, the potential tax savings are lower for those in the lower tax brackets. Taxpayers earning up to Rs 10 lakh a year will be able to save Rs 15,000 while those with an income of up to Rs 5 lakh a year will save a maximum of Rs 8,000 in tax.
And that too if they can find the additional Rs 50,000 to invest in Section 80C options. But those in the lowest tax bracket still have something to smile about. The budget has not removed the Rs 2,000 tax relief given last year to those earning below Rs 5 lakh a year. This means individuals earning up to Rs 4.2 lakh a year and investing Rs 1.5 lakh under Sec 80C will go out of the tax net.
The FM also announced additional tax benefits to home loan customers, increasing the deduction from Rs 1.5 lakh to Rs 2 lakh a year. Those with a home loan, availing of tax benefits, and in the highest tax slab can save an additional Rs 15,000 in tax.
Those earning up to Rs 10 lakh a year can save Rs 10,000 while those in the lowest tax slab stand to reduce their outgo by Rs 5,000. Another key positive is the raising of the annual investment limit in PPF Fund from Rs 1 lakh to Rs 1.5 lakh.