JULY 23,2014

By Niji Arora & Dipti Thakkar, Deloitte Haskins & Sells LLP

WITH the objective of reviving the economy, the Government has tried to allocate the resources towards various sectors and States. While for the common man there has been only a marginal increase in the tax exemption limit, the Government's intention to pursue growth for the Indian economy has been reflected in this Budget.

The few key proposals from a personal tax perspective are as under:

Increase in tax exemption and deduction limits –The basic exemption limit has been raised from INR 200,000 to INR 250,000. Further, the limit for senior citizens (60 years and above but below 80 years) has been enhanced from INR 250,000 to INR 300,000.

At present, deduction of INR 100,000 under section 80C is allowed from income towards specified investments. In order to encourage savings, this limit has been proposed to be enhanced to INR 150,000. Further, the limit for investment in PPF has been proposed to be increased from INR 100,000 to INR 150,000.

The above could result in a tax saving of INR 20,600 compared to the previous financial year for individuals having income above INR 10,00,000 but below INR 1 crore.

Increase in limit for deduction of interest on housing loan

Further, in order to give boost to the housing sector and due to appreciation in the value of properties, the limit for deduction for interest on housing loan for self-occupied property has been proposed to be raised from the existing INR 150,000 to INR 200,000.

Capital Gain Exemption under section 54 and 54F

The existing provision of the aforesaid sections provided that proportionate/entire capital gains arising from certain long term assets will be exempt if investment is made in ‘a residential house' within the stipulated period subject to certain conditions. The intent was to provide exemption if investment is made in ‘ one residential housewithin India' . Accordingly, this has now been proposed in the Finance Bill.

Capital Gain Exemption under section 54EC

The existing provisions provided that proportionate capital gains arising from transfer of long term capital assets will be exempt if investment is made in long term specified assets within 6 months from the date of transfer. However, such investment shall not exceed INR 50 Lakhs during any financial year. As a result, based on judicial pronouncements, the investment was being split between two years such that the total relief claimed by assessees was upto INR 1 crore instead of the intended INR 50 Lakhs.

It is being clarified that the total amount of investment shall not exceed INR 50 Lakhs in the year in which the asset was transferred and the subsequent financial year.

Holding period and long term capital gains for non-equity oriented funds and unlisted securities

It has been proposed that Non-equity oriented funds and unlisted securities would be classified as long term if they are held for more than 3 years and accordingly, eligible for a concessional rate of tax.

Currently, section 112 of the Income-tax Act provides that the long term capital gains arising in respect of non-equity oriented funds shall be taxed at 10% of the capital gains without indexation or 20% with indexation whichever is lower. It is being clarified that long term capital gains on non-equity oriented funds will be taxable only at 20% with the benefit of indexation.

The proposals contained in the Finance (No.2) Bill, 2014 has bought clarity in sections that were ambiguous. Further, the intention to promote growth and make India a tax friendly jurisdiction for investment seems to have been addressed in the Budget.