Tax incentives in Budget will help boost economy

Jul 15 2014, 08:10 IST
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SummaryWith the finance minister increasing the basic tax exemption limit from R2 lakh to R2.5 lakh for resident individuals below the age of 60 years and, for senior citizens

With the finance minister increasing the basic tax exemption limit from R2 lakh to R2.5 lakh for resident individuals below the age of 60 years and, for senior citizens, from R2.5 lakh to R3 lakh, this will provide additional disposable income of about R5,000 to individuals. This would primarily be spent on consumption of goods and services, thereby providing some boost to the overall economic activity.

In FY13, the savings rate in the economy has fallen to 30% of the GDP from the peak of 37% in FY08. Therefore, it was expected that the popular tax deduction under Section 80C of the I-T Act for various tax-saving investments, such as Employees’ Provident Fund, Public Provident Fund, life insurance premium, principle repayment of housing loan, etc., would be increased to R3 lakh.

Any increase in this limit does result in revenue loss for the government and, in absence of any alternative measure to compensate for this revenue loss, there were constraints for the government to make any radical changes. Therefore, this limit has been increased from R1 lakh to R1.5 lakh, which would provide a tax relief of about R15,000 to an individual taxpayer. Though the tax savings for an individual household per se may not be that much, from an overall perspective, the total quantum of funds available under different schemes would be quite substantial.

Interestingly, with a view to encourage small savings schemes, it has been proposed to increase the limit for investment in PPF from R1 lakh to R1.5 lakh per annum. This will benefit households, especially self-employed individuals who are not covered under employers’ Provident Fund scheme. As lakhs of households save funds under PPF, which has a long gestation period of 15 years, these funds can be utilised for long-term projects.

There has been a long-pending demand to increase the deduction for interest paid on housing loan, as the cost of housing and housing loans has increased substantially over the last few years. In this year’s Budget, to provide a boost to the housing sector, this deduction for interest on housing loan for a self-occupied house has been increased from from R1.5 lakh per annum to R2 lakh per annum. This would help households in their decision to buy/construct house and, in turn, provide a much-needed boost to the housing and banking sectors as well as other industries like construction, cement and iron and steel.

It has been proposed that

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