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Budget
2005-06 came with a big bang and major expectations. While
it has brought a smile on a number of faces by giving
more benefits than what was available earlier, everything
is not so pleasant. A hike here, a reduction there and
at the end it’s a juggling act. So do you really
stand to benefit or does it mean more outgo at your end.
And if that’s the case under which sections can
you save maximum tax? Here’s bringing you all analysis
threadbare; from the options you can choose to the implications
of various changes plus what’s in store for you
in future.
Change in Tax Structure:
To start off with, the Budget has revamped the existing
tax structure to the following:
| Taxable
income |
Tax
payable (Slab) |
| Upto Rs 100,000 (Rs 1 lakh) |
Zero |
| From 1 lakh to Rs 1.5 lakhs |
10% |
| From 1.5 lakhs to Rs 2.5 lakhs |
20% |
| Above Rs 2.5 lakhs |
30% |
|
The
Finance Minister has hiked the tax exemption limit to
Rs 100,000 from Rs 50,000 last year. Which means you have
a full Rs 1 lakh to utilize for investments. Invest in
whichever option you find attractive. Be it PPF, post
office savings, insurance, mutual funds or bonds.
Planning to buy a vehicle? Well,
the excise duty on steel has brought down prices of vehicles
which will boost the demand for cars and commercials.
Also the excise duty on tyres has been brought down to
16 percent - but there’s a dampener too - the FM
has imposed a cess of Rs 0.50 paise on every litre of
diesel and petrol sold.
Housing sector:
The housing sector is expected to witness a boom. And
the demand for building material will go up which means
the cement industry will receive a major thrust. As a
result prices of cement is expected to shoot up by about
10-15 percent.
Your morning cuppa gets
cheaper now: Surcharge on tea refined edible
oils and vanaspathi has been scrapped which means these
will become slightly cheaper.
Jewellery
gets costly: The cost of Branded jewellery goes
up by 2 percent
Airconditioners:
An airconditioner is no more a luxury iterm. The FM has
brought down the excise duty to 16 percent from 24 percent.
Computers: While computer software
will cost less now, the cost of hardware will go up thanks
to the 4 percent countervailing duty.
Fringe
Benefits: Chidambaran has imposed a tax on fringe
benefits. Which means all travel, conferences, telephone
calls, perks etc will now come under the tax net. This
is expected to be a major blow especially to companies
in the IT, pharma and FMCG sectors since a good number
of their staff travel for most parts of the month. Also
their publicity costs will go up.
Section 88 scrapped: Section 88 has been scrapped.
So no more investing in insurance only with an aim to
save taxes. On the other hand the widened limit gives
you much more than what you enjoyed earlier. It was rebates
earlier and now it’s a complete deduction of the
amount. So invest as much as you want till you exhaust
the Rs 1 lakh limit under the newly introduced Section
80 C. And to top it all - no sub limits. Which means you
have a range of investment options to choose from and
you can have a balanced portfolio that will weather the
ups and downs throughout.
Section 80
L withdrawn: The Budget has scrapped Section
80 L too. This means income from bank deposits, RBI bonds
and infrastructure bonds will now be fully taxable.
Section 80 CCC: Your Rs 10000 tax
benefit under this section on premium for pension will
continue but under Section 80 C
No hike
in Service Tax: Unlike what many industry observers
expected, the Finance Minister has not hiked the Service
Tax from the present 10 percent. Besides, those wit a
business turnover below Rs 4 lakh have been exempt from
paying service tax.
The One in Six Criteria
for IT: The Finance Minister has done away with
one of the six categories namely owning a mobile phone
as a criteria to qualify as an assessee. So owning a mobile
phone will no more mean you are an income tax assessee
or that you need to file IT returns. Instead, a new criteria
has been added. If you run up electricity bill of over
Rs 50,000 you can be sure to feature in the above list.
Withdrawal of cash over Rs 10,000/-:
Its your money no doubt, but any cash withdrawal over
Rs 10,000 a day would mean paying Rs 10/- as tax. While
this new addition has received much flak from various
quarters the FM says that the move is aimed at curbing
black money.
Hike in exemption limit
for women/senior citizens: Women can be a happier
lot. The FM has hiked the exemption limit for women to
Rs 1.25 lakh and that for senior citizens at Rs 1.50 lakh.
Taken a housing loan? Here are your benefits:
If you have taken a housing loan you have surely been
enjoying the tax breaks for your principal amount all
these years under Section 88 to the extent of Rs 20,000.
Now your principal amount can qualify for the entire deduction.
Which means if you already have made a good amount of
investment, you could prepay your entire principal exhausting
the Rs 1 lakh. |
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| LIC
Introduces |
FUTURE
PLUS -
UNIT LINKED PENSION PLAN |
Future Plus, a deferred pension plan is available
with or without life cover On vesting, the
customer gets a pension on accumulated bid
value of the units allotted under the plan.
Option is available to commute up to one –
third of the fund under the units at the time
of vesting.
The policy can be surrendered at no loss on
the bid value of the units after two years
of policy existence and a small charge up
to a maximum of 4 % is levied if surrendered
within two years. |
| Click
here for more... |
|
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Your
saving equations have changed. Budget 2005-06
has altered it all. But the good news is that
you have more options than before. Perhaps
your hunt for the best avenues for parking
your funds has begun. But instead of picking
one of them, it would be better to have a
diverse portfolio. Here’s a list of
options you can consider.
You no longer need to bother about how much
to invest in a particular avenue to gain the
maximum tax benefits. For Section 88 is history
now. Your tax benefits are more or less uniform.
So here you go.
Equity linked
tax saving schemes: How much of a
risk taker are you? Do you dread the stock
market for fear of losing your hard earned
money? Rake in the moolah minus the risk by
investing in equity linked mutual funds. For
the young ELSS is the right instrument. But
mind you - it has a lock-in period of three
years.
Life Insurance: Have you
been buying insurance only to avail of section
88 benefits? Not anymore. With Section 88
turning history now, your insurance purchase
decisions will henceforth strictly be driven
on the basis of your necessity for risk
cover. So you’ll buy a term cover,
or an endowment cover only if you need it
not with an aim of availing tax benefits.
Mutual funds: Check out
the various funds on offer and have a diversified
portfolio that suits your changing needs.
A balanced portfolio that can easily weather
the ups and downs of the market would be
the ideal one. For those of you who want
to make the most of insurance as well as
investment - it would make better sense
to buy the required amount of pure risk
cover and invest the balance in mutual funds
to maximize returns.
All Interest income taxable except
PPF: The budget has done away with
Section 80 L which allowed tax exemptions
for annual interest upto Rs 12000 and an
additional Rs 3000 for income earned on
government bonds. So henceforth every income
you earn on interest whether from bank deposits,
post office savings or bonds will be taxed.
And the only exception is PPF. But then
soon with EET coming into the picture all
may not seem that attractive. The opportunity
to earn tax-free returns on PPF is only
for a month till 1st April 2005. So make
the most of it.
Buy a house now: With major changes in
the tax structure it makes more sense to
buy a house now. For your entire principal
even to the extent of a full Rs 1 lakh can
qualify for tax deduction compared to the
Rs 20,000 earlier. Are you one of those
who are already paying monthly instalments
to your housing finance company? Now is
the time to make a pre-payment.
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| As
I mentioned in the last issue, bottomry, the ancient
insurance mechanism, prospered as the marine route
was at that time the basis of all trade & commerce
in those days. Medieval groups of traders in Europe
pooled in money to protect their member from loss
by fire and shipwreck, to pay ransom if they were
captured by pirates, and to provide burial and support
in sickness and poverty. By the middle of the 14th
century, as evidenced by the earliest known insurance
contract (Genoa, 1347), marine insurance was common
among maritime nations of Europe. |
In
1688, Lloyd’s of London, the largest marine
insurer today was founded in a coffee shop in London.
Lloyd’s Coffee House became the favored place
for merchants, shipowners and
underwriters to conduct business. Insurance advanced
rapidly with the growth of British commerce in the
17th & 18th centuries, and started becoming
organised. Their growth as with all industries was
marked by periods of defaults & closures as
well. But as we see today, those pitfalls have only
served to make this industry more stable by providing
more safeguards. (Reference : The Layman’s
Guide to Insurance) |
| In
the next edition we shall journey into the start
of Insurance in India. |
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