These are the major highlights of changes in individual taxation from FY 2014-15 post the 2014 Budget that can affect your Household budget and Savings:
1. Changes in Tax exemption slabs
a) For resident individuals (males and females) – exemption limit has been increased to Rs. 2,50,000 i.e. Income upto Rs. 2,50,000 is exempt from tax.
b) For senior citizens (from 60 yrs of age to 79 yrs of age) – exemption limit has been increased to Rs. 3,00,000 i.e. Income upto Rs. 3,00,000 is exempt from tax.
c) For super senior citizens (from 80 yrs of age) – exemption limit remains the same at Rs. 5,00,000.
2. Changes u/s 80C
a) Deduction limit u/s 80C has been increased to Rs. 1,50,000 from Rs. 1,00,000.
b) Maximum investment limit in PPF increased to Rs. 1,50,000 from Rs. 1,00,000.
c) Tax incentive given to all types of bonds instead of just infrastructure bonds.
3. Change in Interest on Housing loan
Earlier Interest on housing loan was allowed upto Rs. 1,50,000 max in case of a self-occupied property. Now that limit has been increased to Rs. 2,00,000.
Note that 100 % of Interest paid on let out property is still allowed from rental income.
4. Changes related to Taxation of Debt/non-equity mutual funds such as Debt funds, Liquid funds, FMPs
a) Return from these funds are treated as Capital Gains and not Income from other Sources.
b) A lock-in holding period of 3 yrs has been introduced. Earlier this holding period was 1 year. That is to say, the instrument has to be held for a minimum of 3 yrs to be treated as long term capital asset.
c) The taxation rate for this long term capital asset has been made constant at 20% – earlier it was taxed at 10% without indexation and 20% with indexation.
d) If this asset is sold within 3 yrs, the short term capital gain is added to the total taxable income and taxed as per applicable slabs.
5. Capital Gains Exemption Relief u/s 54 & 54F for purchase of new residential property
Earlier in case the assessee earned long term capital gains in sale of residential property, he could invest the capital gains amount in any number of new residential houses to claim 100% exemption from capital gains tax. Now the long term capital gains exemption u/s 54 and 54F in case of residential house property has been fixed to 1 new house only.
6. Capital Gains Exemption Relief u/s 54EC for investment in bonds
Capital Gains Exemption Relief u/s 54EC is now restricted to Rs. 50 lacs on the whole , including the financial year in which the original asset is transferred and the subsequent financial year.
7. Forfeited Advance
Any advance forfeited during negotiations for sale of residential property when the negotiations do not result in sale, is now taxable as Income from Other sources instead of adjustment with the Capital Gains.
8. Real Estate Investment Trusts
The Budget 2014 has given a push to Real Estate Investment Trusts by proposing that Long Term Capital Gains on sale of such REIT units should be exempt from tax while Short Term Capital Gains should be taxed @ 15%.