The Finance Minister has opened his Pandora box in the Union Budget with a mix of surprises. While there are both positives and negatives in this budget, we will discuss the positive things from the point of view of personal taxation.
Benefits for senior Citizen
From individual taxation point of view, this year’s budget can be truly termed as the budget for senior citizens. The finance minister has proposed various measures to provide relief to this class of citizens.
With the cost of medical treatments going up more than the general inflation levels and senior citizens having to spend relatively more money on their health, medical cost or medical insurance premiums of senior citizens constituted the major part of the budget. Presently, the senior citizens themselves or their children are entitled to claim deductions upto Rs 30,000 for premium paid for buying health insurance policies. The finance minister has proposed to enhance this limit under section 80 D to RS 50,000. The finance minister has also extended the benefit of availing deduction in respect of expenses incurred for treatment of a senior citizen where the senior citizen does not have any health insurance. This was available only to people over 80 years of age. This is very welcome step for those senior citizens who are not able to get a health insurance policy due to advanced age and onset of some ailments.
The other major relief proposed in the budget for senior citizen is with respect to interest income from banks, post offices and credit cooperative banks. The senior citizens mainly depend on the interest from fixed deposits for their day to day expenses. Presently, Section 80 TTA provides for deduction upto Rs 10,000 to all the tax payers for interest from saving bank accounts from banks, post offices and credit cooperative banks. No deduction is presently available on fixed deposits or recurring deposits. The finance minister has proposed to insert section 80 TTB to provide an overall deduction upto Rs 50,000 for interest earned from banks, post office or credit cooperative banks. This will include all interests from these institutions whether it is on saving bank account or fixed deposit or recurring deposits. The finance minister simultaneously proposed to enhance the limit for tax deduction at source (TDS) by the taxpayers. Presently, banks, post offices and credit co operative banks deduct tax if the interest earning exceeds Rs 10,000 from FD and RD.Now, this limit is proposed to be raised to Rs 50,000. Both these provisions will effectively leave more cash in the hands of senior citizens for meeting their day to day expenses.
The budget has also proposed to increase the limit of deduction under Section 80 DDB for treatment of some serious ailments from Rs 60,000 to Rs 1 lakh.. The ailments include various diseases like dementia and Parkinson’s disease which many senior citizens suffer from as these are age-related ailments.. This deduction is also available for day to day expense incurred for treatment and does not necessarily require hospitalisation.
The finance minister has also proposed to restore standard deduction upto Rs 40,000 (discussed later). This will benefit the senior citizen pensioners as well. Tax relief to buyer and seller of immoveable property:
Profit on sale of immovable property is taxed as business income for developer and the same is taxed as capital gains in case of individuals. Computation provisions under both the situations provide that if the stated consideration is lower than the value computed based on circle rates, it will become taxable. Section 43CA and section 50C deal with this situation where the immovable property is a capital asset. Under both the situations, the provisions provide that where the value of apparent consideration is lower than the value as per circle rate adopted for the stamp duty payment, the difference between the two becomes taxable in the hands of the seller. If it is a business asset, the same becomes taxable as business income and as capital gains if the asset is held as capital asset. So, even for a small difference between these two rates, the sellers are required to pay tax on circle rate valuation. In case, the tax payer wishes to claim exemption by making investments under Section 54, 54F or 54 EC , the investments to be made have to be computed with reference to circle rate. So, the seller of the property even has to invest the money which he has never received.
Even a buyer is not spared in such a situation. The difference between circle rate value and agreement value becomes taxable in the hands of the buyer under Section 56(2) as gift in case the difference exceeds Rs 50,000.
In order to reduce litigation and hardship to both the sellers and buyers for small difference between the circle rate and apparent consideration, the finance minister has proposed that the provisions of Section 43CA, 50C shall not be applicable in case the difference between these two values does not exceed 5% and the consideration as per agreement shall be treated as sale value for income tax purpose.
Likewise, the buyer will also not be required to pay any tax under Section 56(2) if the difference does not exceed 5%. Even in case the difference between both these values is higher than 5% but does not exceed Rs 50,000, the buyer will not be required to pay any tax on such difference.
Restoration of standard deduction for salaried persons
The salaried class has been demanding for long time for restoration of standard deduction which was available till 2005. Till 2005, salaried people were allowed a flat deduction from the taxable salary without proof of any expenses. The standard deduction is justified as salaried people as a class do not have any option to minimise their tax liability like the self employed people who can claim personal expenses as business expenditure. Salaried people are not allowed to claim many expenses like expense incurred for updating their skills, or expenses incurred for commuting from office to home and home to office. So to meet their demand, the finance minister has proposed a flat standard deduction upto Rs 40,000 from salaries for salaried people. However, the finance minister has played a trick here. While allowing this standard deduction of Rs 40,000, he has withdrawn the exemption available to employees for reimbursement of medical expenses upto Rs 15,000 as well as conveyance allowance which is exempted upto RS 19,200 available to the salaried people presently. So effectively, the finance minister has given a relief of only Rs 5,800 to salaried people.
The restoration of standard deduction is certainly going to be very beneficial for the salaried people who do not have these two components as part of their salary and also to senior citizen pensioners as the entire standard deduction of Rs 40,000 will add to their tax free income in such situation.
The author is a CA, CS and CFPCM