New Tax slabs and deductions were announced in Budget 2014. In this post, let us understand the impact of these changes on the savings. The main changes are;
- The basic exemption limit has been increased from Rs 2 Lakh to Rs 2.5 Lakh and for Senior citizen it is upto Rs 3 Lakh
- The maximum deduction under Section 80c has been increased from Rs 1 Lakh to Rs 1.5 Lakh
- The maximum deduction for payment of interest on a home loan for a self-occupied property is increased from Rs 1.5 Lakh to Rs 2 Lakh
Now, let us understand the impact on our savings based on the tax slabs and rates.
1 – Basic Tax Exemption limit & Savings
A tax credit Rs 2,000 is available for persons with income upto Rs 5 Lakh. So, that is an additional savings of around Rs200.
Good figures in terms of Savings. But, the key point is REAL RATE OF RETURN. The real rate of return is calculated based on the interest rate and inflation. For example, if bank Fixed deposit gives a return of 9% and prevailing inflation is 8% then the actual return is 0.9% (i.e., not even 1%).
Recently, we have seen a hike in railway fares and petrol/diesel prices. The food item prices are also high. Besides these, we need to wait and watch the impact of this year’s poor monsoon (may be ) and Iraq crisis on the inflation.
So, the major challenge before our government is -“HIGH INFLATION!”
(FYI– The inflation rate in India was recorded at 8.28 percent in May of 2014. Inflation Rate in India averaged 9.62 Percent from 2012 until 2014, reaching an all time high of 11.16 Percent in November of 2013 and a record low of 7.55 Percent in January of 2012. I)