Budget 2014: Ten Tax Changes That Will Impact You

In his first budget presented on July 10, Finance Minister Arun Jaitley announced a number of tax changes. Here are some of the tax changes in budget that impact you:

The Finance Minister has raised the exemption limit on income tax from Rs. 2 lakh to Rs. 2.5 lakh. For senior citizens, the exemption on income has been raised to Rs. 3 lakh per annum.

Finance Minister also hiked the cap on long-term investments under Section 80C of the Income Tax Act from Rs. 1 lakh to Rs. 1.50 lakh.

Savings instruments such as housing loan repayment (principal), five-year and above tenure fixed deposits, provident funds (PFs) and life insurance policy premiums are some investment vehicles that qualify for tax exemption under Section 80C of the Income Tax Act.

The Finance Minister raised the tax-free cap on interest paid on housing loan from Rs. 1.5 lakh to Rs. 2 lakh.

Finance Minister Arun Jaitley proposed to increase the long-term capital gain tax on debt mutual funds from 10 per cent to 20 per cent.

Dividend distribution tax: The increase in dividend distribution tax also comes as a blow to debt fund investors. Earlier, dividend distribution tax was applied on net dividend paid out, at 28.33% (25% DDT+ cess + surcharge) and hence the effective tax used to be 22.08 per cent. Going forward this rate will apply on gross basis making the actual and effective rate same i.e. 28.33 per cent.

Finance Minister in the Budget 2014 also increased the minimum holding period for debt mutual funds to qualify for long-term capital gains tax to 36 months, from 12 months at present.

Mutual fund-linked retirement plans will now get a tax treatment similar to regular pension funds such as the National Pension System. This means retirement funds will fall in the EET category (exempt-exempt-taxed).

Capital gain exemption on residential house property:As per the existing tax provisions, long-term capital gain arising from sale of a capital asset is exempt under Section 54/54F if invested in purchase or construction of a house property, subject to certain conditions.

It has now been clarified that the investment for getting capital gains benefit should be made in one residential house property situated in India, not abroad. This amendment will apply in relation to the assessment year 2015-16 and subsequent years.

Investment in bonds for availing long-term capital gains exemption: A tax payer who wishes to claim the exemption from long-term capital gains has to invest the amount in the capital gains bonds within six months from the date of sale or before the filing of returns, whichever is earlier. This benefit is available under Section 54- EC of the Income Tax Act 1961 up to a limit of Rs. 50 lakh in a single financial year.

It has now been clarified that the total of exemption in respect to long-term capital gains for investment in capital gains bond shall be restricted to Rs. 50 lakh. This amendment will apply in relation to the assessment year 2015-16 and subsequent years.

Advance received for sale of property and forfeited: It has been proposed to tax any advance received and later forfeited by individuals for sale of a capital asset like flats if the transaction does not fructify.

If negotiations don't result in transfer of the capital asset and such money taken in advance is forfeited by the assessee, then the amount will be taxed in the same year under the head of 'income from the other sources'. Under the existing provisions, such amount could be reduced from the cost of acquisition of the asset subsequently in the year of sale of the capital asset while determining capital gains.