New Delhi: Giving with one hand and taking with the other, Finance Minister Arun Jaitley Saturday hiked tax deduction limit for individuals to Rs 4.44 lakh, but slapped an extra surcharge on super-rich and raised service tax rate.
The individual taxpayers would get additional deductions of up to Rs 74,600 a year from their taxable income following new measures, in lieu of investments in pension and health insurance schemes, among others.
At the same time, the increased super-rich surcharge and a higher service tax rate will help the government mop up a net amount of Rs 15,068 crore in tax revenues in next fiscal.
The ultra-rich would, however, be spared of any wealth tax, which has been scrapped, and all with annual income of Rs one crore or more would have to pay an increased super-rich surcharge of 12 percent, up from 10 percent currently.
The companies have emerged as the biggest gainer of the new taxation proposals, which include a phased reduction in the corporate tax rate from 30 percent to 25 percent over a period of four years.
In his bid to move closer to the Goods and Services Tax (GST) regime, Jaitley raised service tax from 12.36 percent to 14 percent which will make smoking and consumption of other tobacco items, as also a whole lot of services including air travel, phone bills and eating out, more expensive.
On the direct taxes side, Jaitley also increased surcharge from 10 percent to 12 percent on corporates with income of over Rs 10 crore. Companies having earnings between Rs 1-10 crore will also have to pay a surcharge of 7 percent.
The Budget for 2015-16, has proposed raising the tax deduction limit by Rs 10,000 to Rs 25,000 for payment towards health insurance premium. For senior citizens, this limit has been hiked to Rs 30,000.
At the same time, exemption of transport allowance has been doubled to Rs 1,600 a month, resulting into total benefit of Rs 19,200 annually.
To provide social safety net and the facility of pension to individuals, an additional deduction of Rs 50,000 was proposed to be provided for contribution to the New Pension Scheme under Section 80CCD.
"After taking into account the tax concession given to middle class tax payers in my last Budget and this Budget, today an individual tax payer will get tax benefit of Rs 4.44 lakh," Jaitley said in his Budget speech.
Overall, the direct tax proposals are expected to result in a revenue loss of Rs 8,315 crore. However, the government will make up for the shortfall by raising an additional Rs 23,383 crore from indirect taxes.
The net gain would be Rs 15,068 crore.
The deduction limit under section 80C has been maintained at Rs 1.5 lakh, while the tax deduction on account of interest on home loan has been kept unchanged at Rs 2 lakh.
"Raising the limit of health insurance premium, transport allowance exemption and additional deduction of 50,000 for NPS will help taxpayers to save little more in taxes," PwC India Partner and Leader Personal Tax Kuldip Kumar said.
Commenting on tax deduction limit, PNB MetLife MD Tarun Chugh said the proposal to increase the tax benefits for health insurance from Rs 15,000 to Rs 25,000 is a welcome step.
"Currently, over 78-80 percent of health care expenses are funded by the Indians out of their own pocket and this move will encourage people to increase their coverage keeping in the mind the rising cost of healthcare," he said.
With the reduction of corporate tax rate in a phased manner from 30 percent to 25 percent over the next 4 years, India Inc has a tax clarity for next five years at-least, Rakesh Nagia, Managing Partner Nagia & Company.
Additionally, he said, with a view to tax the super-rich in an efficient manner, Jaitley has duly taxed the super-rich by abolishing wealth tax and levying 2 percent surcharge.
Reliance General Insurance CEO Rakesh Jain said that the increase in 80D limit for health insurance premium would support individuals to take better coverage for full family hospitalisation and critical illnesses.
"The best part is that employees covered under ESI would have an option to shift to Health Insurance which would open for them the entire range of hospitals with ultra modern facilities and ensure even they can avail the best treatment," he added.
PwC India's Anuraag Sunder said that the proposals would give a further boost to the insurance sector, with higher tax limits in health insurance, among other proposals.
Later in the evening, Finance Minister said he wants the country's savings rate to increase further.
"India had a domestic saving rate of 36 percent, now it is 30 percent. I want to India's saving rate again go back to 36 percent," Jaitley said.
Asked why he did not increase income tax exemption limit to Rs 5 lakh, he said, "If you avail every exemptions provided in the Budget, then person who earns even Rs seven lakh a year will not have to pay tax."
