M Y B A N K L E T S M E S E N D A T E X T M E S S A G E A N D I T L L T E X T B A C K W I T H M Y B A L A N C E .

I T S A C O O L F E A T U R E B U T I D I D N T T H I N K T H E L O L WA S N E C E S S A R Y
Take a home loan, take home more
TEAM TOI
W
hy rent when you
can buy and beat
tax? The Budget
made purchase of homes
more attractive, at least for
the middle class, by raising
deduction against inter-
est payment on home loan
from the taxable income to
Rs 2,00,000 from Rs 1,50,000.
This will enable a home
buyer to save an additional
amount of Rs 15,450 from
his or her tax liability.
It will also, in effect, low-
er interest rates for home
loans. So say that one has
taken a loan of Rs 25,00,000
to buy a house at an inter-
est rate of 10% for 20 years,
the EMI will be around
Rs 24,125, which adds up to
Rs 2,89,500 annually. Out of
this, Rs 2,50,000 will go to-
wards interest payment and
the rest Rs 39,500 will
be used for principal repay-
ment. Post-Budget, the buy-
er can avail a deduction of
Rs 2,00,000 from his or her
taxable income as the in-
terest payment will be Rs
2,50,000 in the rst year. This
will enable the buyer to save
Rs 61,800 from tax liability
if his or her income is in
the highest tax bracket of
30.9%. The net tax outgo
after adjusting for the sav-
ings in tax will be only Rs
1,88,200. As the loan amount
is Rs 25,00,000, the net inter-
est rate will work out to only
7.53%. But if the borrowed
amount increases, the net
interest rate will increase.
So if the loan amount is
Rs 1,00,00,000 at 10% rate,
the net interest rate will be
9.38%. This is because the
tax benet remains at Rs
61,800 only.
Experts say that in big
metros like Delhi, Mum-
bai and Bangalore where
most ats cost upward of
Rs 1 crore, it would make lit-
tle difference to a buyer.
Pankaj Kapoor of prop-
erty research rm Liases
Foras said the relief was
marginal for those who live
in tier-one cities. The rebate
should have been much high-
er, he said. In Mumbai, the
average cost of a at is Rs 1.2
crore. On this, the monthly
EMI itself would be around
Rs 1 lakh, of which 80%
goes towards interest. This
exemption is not enough to
promote housing in category
one cities, he said.
Property consultant
Ashok Narang said the
move would benet the sala-
ried class to some extent.
Flat buyers in two-tier cit-
ies where prices are com-
paratively much lower will
feel the difference, he said.
Abhisheck Lodha, man-
aging director of Lodha
Group, said the increase
wont change anything for
at buyers in big cities like
Mumbai. But it is an incre-
mental difference for homes
in the range of Rs 25 lakh to
Rs 50 lakh, which are avail-
able in the Mumbai metro-
politan region, he said.
Added Pranay Vakil of
Praron Consultancy, If you
want to encourage housing,
no matter what interest you
are paying, it should be ex-
empted from taxation. Its a
basic need. The industry
had demanded that the limit
be hiked to at least Rs 5,00,000,
which could have covered
repayment of loan of Rs
100,00,000 for quite some time.
Another Budget proposal
allowing corporate social
responsibility in slum rede-
velopment was welcomed by
developers like Boman Irani,
who said it would have a big
impact in Mumbai, where
half the population lives in
shanties. Big companies
could pump in at least a cou-
ple of thousand crores in
slum projects, he said.
The relaxation in FDI
norms for real estate would
also open up a new stream
of cheaper money for devel-
opers, said experts. The FDI
limit has been reduced from
50,000 sq m to 20,000 sq m and
minimum investment from
$10 million to $ 5 million.
The nance ministers
vision for housing is the
rst positive signal that this
government intends to lis-
ten to the real estate indus-
try, said Irani.
The tax pass through
status for Real Estate In-
vestment Trusts (REITs) to
avoid double taxation will
bring in more investments
to the sector, said industry
experts.
FM Raises Deduction On Interest Payments; Max Benefit For Buyers In Tier-Two Cities
T
he macro economic
backdrop to the Modi
governments maid-
en Budget was quite chal-
lenging. Slowing growth,
high ination, global eco-
nomic uncertainties and a
pressing need to x nanc-
es were indeed formidable
factors. On top of this lay
the burden of huge expecta-
tions and the fact that the
government had barely six
weeks to prepare. Given
this, the nance minister
has done a splendid job.
He has resisted the
temptation to increase the
scal decit, and accepted
the daunting challenge of
achieving 4.1% this year,
going down to 3.6% and
3% in subsequent years.
He correctly identied that
todays decit is tomor-
rows tax burden. The scal
strategy is to revive growth
through various impulses,
and harvest the consequent
tax revenue to keep the de-
cit in check.
The impulse has been
provided through measures
that affect infrastructure
and manufacturing, espe-
cially for small and me-
dium enterprises (SMEs).
The FM has agged off a
major fund for rural road-
ways, several measures
to boost low-cost housing
and rural housing, support
for the national highway
programme, 16 new port
projects and simplication
of investments. All these
will have a multiplier effect
on growth.
The tourism initiatives
will contribute to job crea-
tion. The setting up of a
Rs 10,000-crore venture
fund for SMEs is also very
welcome. The extension of
excise relief for manufac-
turing is also welcome.
The Budget also had
several reform-oriented
measures, especially for
the nancial sector. It also
detailed measures for the
marginalized, the elderly
and those who are different-
ly abled. All in all, a great
beginning of a long journey.
WHAT IT MEANS FOR THE TAXPAYER
THE TIMES OF INDIA, NEW DELHI
FRIDAY, JULY 11, 2014 02
2014
UNION
BUDGET
view
FROMTHE
TOP
K M Birla I CHAIRMAN
Aditya Birla Group
TEAM TOI
F
inance minister Arun
Jaitley has tried to put
a little more money into
taxpayers pockets. He raised
the exemption limit by
Rs 50,000, that is from
Rs 2,00,000 to Rs 2,50,000, for
all taxpayers below the age
of 60. For senior citizens, the
exemption limit has been in-
creased from Rs 2,50,000 to Rs
3,00,000 for all income groups.
For those whose income
is between Rs 2,00,000 and
Rs 5,00,000, the exemption
limit hike is Rs 30,000 and not
Rs 50,000 as in 2013-14. The
previous government had al-
lowed a deduction of Rs 20,000.
This meant that income up to
Rs 2,20,000 was tax exempt for
those earning up to Rs 5,00,000.
In 2014-15, however, income up
to Rs 2,50,000 will be exempt.
This means a benet of
Rs 5,150 to those whose in-
come is between Rs 5,20,000
and Rs 1 crore. But for those
whose income is more than
Rs 1 crore, the net benet will
only be Rs 5,665 because 10%
surcharge levied.
The exemption limit has
been increased six times
since 1997-98. Ten years back
in 2004-05, the exemption
limit was Rs 50,000.
If it is adjusted for ina-
tion, the exemption limit
should have been kept at Rs
92,700 only.
In the direct tax code,
which has suggested reforms
in the tax structure, it is pro-
posed to increase the exemp-
tion limit to Rs 5,00,000.
Keeping deficit
in check will
boost economy
SAVING GRACE
Gain Old Tax Liability New Tax Liability
Up to 2.2 lakh
2.5 lakh 3,090 Nil 3,090
3 lakh 8,240 3,090 5,150
5 lakh 28,840 23,690 5,150
10 lakh 1,33,900 1,28,750 5,150
50 lakh 13,69,900 13,64,750 5,150
1 crore 29,14,900 29,09,750 5,150
1.5 crore 49,05,890 49,00,225 5,665
2 crore 66,05,390 65,99,725 5,665
5 crore 168,02,390 167,96,725 5,665
Income
Figures in
H
indus believe a dip in the holy Ganga washes away sins, and there might be some science behind
the faith. East India Company ships used Ganga water for drinking during their three-month voyage
to England. The water apparently stayed fresh. Some experts have talked of the rivers self-cleansing
properties. Organic material exhausts a rivers oxygen supply putrefying the water. But in the Ganga,
an unknown substance kills bacteria. Gangas oxygen levels are 25 times higher than any other river
GANGA, A RIVER SUTRA GLORIOUS CLEANSER
A
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Small savings cleared for take-off by 80C
TEAM TOI
I
n a bid to boost household savings,
nance minister Arun Jaitley
has increased the limit on invest-
ments under 80C, that are exempt
from income tax, from Rs 1 lakh a
year to Rs 1.5 lakh.
These include investments in Em-
ployees Provident Fund (EPF), Pub-
lic Provident Fund (PPF), life insur-
ance policy with a lock-in period of
three years, equity-oriented mutual
funds, Kisan Vikas Patra, National
Savings Certicate and xed depos-
its with ve-year term among others.
For those with taxable income
above Rs 10 lakh, where income tax
at the rate of 30.9% is levied, the in-
crease in the investment limit will
allow maximum savings of Rs 46,350
against the earlier Rs 30,900.
Jaitley specically mentioned
that the entire investment limit of
Rs 1,50,000 could be exhausted in a
PPF account with a tax-free return
of 8.5%. As one can avail the ben-
et of deduction up to the invested
amount from the taxable income
and the nal proceeds are also tax-
free, the 8.5% tax-free income is
equivalent to almost 15.7% pre-tax
return which is the highest secured
return one can get in the system.
To address the concerns of de-
cline in savings rate and improving
returns for small savers, I propose
to revitalize small savings, Jaitley
said. However, even the new raised
limit on investments will be ex-
hausted with just EPF deduction,
so there is little scope for additional
savings. It was expected that the lim-
it would be increased to Rs 5 lakh as
suggested in the direct tax code.
Grow your
money with
kisan bonds
TEAM TOI
F
inance minister Arun
Jaitley has reintroduced
small savings schemes
like Kisan Vikas Patra (KVP)
and National Savings Certi-
cate (NSC).
KVP, a bond-like instru-
ment in which the invested
amount doubles in a given
period, was discontinued by
UPA II. In the last scheme, the
period in which the amount
doubled was eight years and
seven months. For the new
scheme, the interest rates are
yet to be announced.
The amount invested in
KVP can be deducted from the
taxable income, reducing the
liability of an investor. KVPs
were popular in villages as
they were sold at post ofces,
reaching far-ung areas.
Even though it is named
Kisan Vikas Patra, anyone can
invest in it. The reintroduction
of KVP is expected to boost
savings. Before it was with-
drawn, KVP accounted for
one-fourth of the total inows
into all post ofce schemes.
Though the maturity period is
mentioned on the bond paper,
money can be withdrawn after
two-and-a-half years.
The government will also
issue NSC named after the
girl child to specically cater
to the requirements of educa-
tion and marriage of girls.
Ram
Tax lift goes
down, youre
up one floor
DREAM DEDUCTION
POCKET MONEY
Illustrations: Ajit Ninan; Editorial Support: Surya Bhatia
,
Professor in College
12L
The slew of IITs and IIMs
promised by the finance
minister is great news for him
but the professor has little else
to look forward to in the
Budget. Most of what he saves
on account of the increased cap
under 80C will probably go to
fund the smoking habit he
hasnt been able to kick all
these years. And in more bad
news, his students will be able
to afford better smartphones
to play with in class
Bank Manager
He was happy to watch the World Cup on his new LED
but the bank managers ruing having bought it before
the Budget. Fortunately, his housing loan is fairly
recent and he gets an increased deduction on
interest. He can hope to save upwards of Rs 15,000 a
year, which could go towards his retirement nest
ASSUMPTIONS
Purchased an
apartment with a total
loan of 40 lakh at
10.5% ROI, repayment
over 15 years
8L
Pre
Budget
Post
Budget
Basic
HRA/CLA
Conveyance Allowance
Medical Allowance
LTA
Special Allowance
Gross Salary/Pension* 800,000 800,000
Gross Taxable Salary 800,000 800,000
Income from Business & Profession
Income from LTCG-Equity 25,000 25,000
Exempt LTCG-Equity u/s 10(38) (25,000) (25,000)
Interest on Housing Loan (150,000) (200,000)
Interest Income 14,500 14,500
Gross Taxable Income 664,500 614,500
Less: Deductions
Investments u/s 80C 25,000 25,000
RGESS 25,000 25,000
Mediclaim u/s 80D/ Maintenance of
Handicapped Dependent u/s 80DD
15,000 15,000
Interest Deduction 10,000 10,000
Donation u/s 80G
Net Taxable Income 589,500 539,500
Tax on Above Income 47,900 32,900
Add: Surcharge
Add: Education Cess 958 658
Secondary & Higher Education Cess 479 329
Total Tax Payable 49,337 33,887
Pre
Budget
Post
Budget
Basic 600,000 600,000
HRA/CLA 300,000 300,000
Conveyance Allowance 9,600 9,600
Medical Allowance 15,000 15,000
LTA 10,000 10,000
Special Allowance 265,400 265,400
Gross Salary/Pension 1,200,000 1,200,000
Gross Taxable Salary 1,175,400 1,175,400
Income from Business & Profession
Income from LTCG-Equity
Exempt LTCG-Equity u/s 10(38)
Interest on Housing Loan
Interest Income
Gross Taxable Income 1,175,400 1,175,400
Less: Deductions
Investments u/s 80C 100,000 150,000
RGESS
Mediclaim u/s 80D/ Maintenance of
Handicapped Dependent u/s 80DD
15,000 15,000
Interest Deduction
Donation u/s 80G
Net Taxable Income 1,060,400 1,010,400
Tax on Above Income 148,120 128,120
Add: Surcharge
Add: Education Cess 2,962 2,562
Secondary & Higher Education Cess 1,481 1,281
Total Tax Payable 152,564 131,964
THE TIMES OF INDIA, MUMBAI
FRIDAY, JULY 11, 2014
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