Budget 2014-15 may not go down as the most impactful budget for your moola, although its wide reach in terms of macro economic and social development would all have an indirect impact for you.
For now, let’s take a quick look at some of the direct tax proposals and their impact on your money and investments:
Tax slab and tax deduction on investments
– The minimum income slab which is exempt from tax has been increased from Rs 2 lakh to Rs 2.5 lakh for those less than 60 years of age. For those above 60 years of age and below 80 years, the same is proposed to be increased by Rs 50,000, to Rs 3 lakh. The Rs 5 lakh income slab exempt for those above 80 years remains the same.
– Effective April 1, 2015 Investments that qualify for deduction under Section 80C of the Income Tax Act will now have a overall ceiling of Rs 1.5 lakh from Rs 1 lakh earlier. That means your investments under this section – including PPF, tax-saving mutual funds, NSC, insurance premium, home loan principal and so on can be increased by Rs 50,000.
– Interest on your home loan for self-occupied property is currently allowed deduction up to Rs 1.5 lakh. This is proposed to be increased to Rs 2 lakh from April 1, 2015 (please note that the budget proposal says effective April 1 2015 for AY 2015-16. This may please be interpreted as effective for FY 2013-14)
All the above measures put together, if utilized fully, would result in a saving of Rs 15,450 for a person in the 10% tax bracket, Rs 25,750 for those in the 20% tax bracket and Rs 36,050 for individuals in the 30% tax bracket (for those less than 60 years of age).
Capital gains on debt mutual funds
Thus far, non-equity mutual funds held for more than 1 year qualify for indexation as long term capital gain. This time frame is now increased to 36 months. That means you will have to hold non-equity mutual funds for 3 years to enjoy indexation benefits.
Also, currently the tax on debt mutual funds is 10% without indexation or 20% with indexation. The 10% option is proposed to be withdrawn. You will still have the 20% with indexation option. This change is effective for sale or redemption of funds. made from April 1, 2015
Please note that the budget proposal says effective April 1 2015 for AY 2015-16. This may be interpreted as effective financial year 2013-14. That means if you had held a non-equity mutual fund for less than 3 years and sold it any time after April 1, 2014, it would be treated as short-term capital gain and taxed at your slab rate. Any holding that crosses 3 years at the time of redemption will only be eligible for indexation benefit.
What does this mean to you as a debt fund investor?
– For those who have been investing in liquid or ultra short-term funds with a less than 1 year view nothing changes as the tax status of ‘short-term capital gain’ remains.
– For those who invest in debt income funds as part of their asset allocation for their long term (over 3 years), no harm done, as you will continue to benefit from indexation. In fact inflation indexation in the last 3 years was so high (9.2% annualized in the last 3 years) that you would not have paid almost nil tax on most of your debt fund investments.
– It is only those with a 1-3 year view in debt mutual funds who need to be aware of the loss of indexation benefit. Even there, in a falling interest rate market, the returns in this segment could still beat traditional options such as fixed deposits, as the price rally can generate superior capital appreciation.
We will come out with a more detailed note, in a couple of days, of what should be your strategy with respect to debt investments.
New avenues and easing of processes
Besides the above tax impact, the new Government, in an attempt to revive small savings, has planned to reintroduce Kisan Vikas Patra. A special small savings instrument for the girl child and a National Savings Certificate with insurance cover will also be launched.
Proposal to introduce a single demat account for all financial transaction, single KYC across financial sector and a unified account scheme by EPFO to ensure provident fund portability are all measures that may make your investing life a bit easier.
We will soon come out with a more detailed note on budget and what should be your strategy.
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- Intimation of suspension of subscription in Bandhan US Equity Fund of Fund
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Wealth Conversations – November 2024- Notice of Change in Fundamental Attributes of DSP Equity & Bond Fund and DSP Quant Fund
Is this budget w.ef.from April,2015 or April,2014
You have mentioned it April,2015
Hello Dalip, The budget document mentions it as April 1 2015.
I think this budget is For FY 2014-15,
Budget Documents are correct or there is a misprint.
Hi Vidya,
Then what about the budget that will happen during Feb of next year like it happens every year unlike this year because of elections? Will all its proceedings be effective from April 1, 2016? or even that will be for April 1, 2015?
Hello Ravi Shankar,
Next year, it will be effective April 2015. Since we have already crossed a quarter and such tax changes cannot be retrospective, it is effective APril 2015 this time.
This is for A.Y. 2015-16, thus applicable for any redemptions in non-equity funds done this year (FY 2014-15, i.e. AY 2015-16).
Hi Vidya,
Thanks for the article. I was waiting for this since the budget anouncement was over.
But I am still confused with the effective date for this budget. As you mentioned that It is effective from 1st April, 2015 then where is the budget for this financial Year (2014-2015) ? Will current financial year continue with the Intrim budget provided by UPA govt ? in that case will we get the Basic Tax Excempt of 2.5 Lakh and section 80c deduction of 1.5 Lakh during the financial year 2014-2015 ?
Thanks & Regards,
Jayabrata
Hi Jayabrata the budget is for 2014-15…
For 80C and non equity fund capital gain taxation I am reproducing what is stated in the document:
“These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year
2015-16 and subsequent assessment years”
That is what makes it confusing. We will update you when there is clarity on this.
HI Vidya,
Thank you for making the Capital gain changes in debt funds so clear and so fast. Believe me, I was searching everywhere and nowhere found the explanation so clear as you have given.
Vidya..I think you need to check again…This budget is for FY 14-15 and the tax slabs will be effective for this FY.
Hi Sheeba, the tax slabs are effective this year no doubt. For 80C and non equity fund capital gain taxation I am reproducing what is stated in the document:
“These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year
2015-16 and subsequent assessment years”
That is what makes it confusing. We will update you when there is clarity on this.
What about the redemptions of Debt mutual funds made from 1st April 2014 to date. Is it 12 or 36 months for Long term capital gain!!
Hello Simi,
Any sale/redemption made from April 1, 2014 will have to be >3 yrs holding to qualify for LTCG. Else it will be STCG.
Hi Vidya Ma`am,
I have redeemed Units on 29/06/14 after 1.5 Yr from IDFC Dynamic Bond Fund with a LTCG as redeemed after >1 yr. So now how that gain would be treated now, i mean STCG or LTCG?
And i also want to ask you that i am still holding some Debt MF Units since 1.5 to 2 yrs and was planned to redeem it very soon. I will fall into 20% Tax Slab if STCG implied on my that Gain.
kindly suggest me on my holding please.
Thanks & Regards,
Arti Singh
Hello, Unless the govt. reconsiders this proposal, your gain will be taxed for units redeemed in June. It will be STCG. For the dynamic bond, my suggestion would be that you hold for 1 more year (until 3 yrs that is) or at least until you see double digit returns, which likely when rates fall. That way even if you don;t get indexation, the superior returns will make up for the tax. But pl. wait for any change in stance in this regard by FM.
thanks,
Vidya
Hi Vidya, there was a point of Dividend Distribution Tax mentioned. I am given to believe that DDT would increase by 4 – 5% and that would be effective 1st October 2014. Just wanted to know is it applicable for all debt and liquid funds?
Hello Shiraj,
Yes, the changed calculation of DDT will be applicable for debt funds too.A note we will be sending out to investors in this regard, will have a detailed explanation. thanks,
This amendment will take effect from 1st April, 2015 and will accordingly apply, in relation to the assessment year 2015-16 and subsequent assessment years.
What is the meaning of above statement and how we can interpret the taxation. Does the statement says it is effective from 1st April 2015 means redemption after that or investment after that falls under new LTCG rules?
Appreciate if you could clarify.
Hello Selvan, Pl. see the update made in the blog now (in the same article). It will answer your query. thanks, Vidya
It does look like the 3 year LTCG comes into effect after April 2015. When you post a clarification on this can you explain whether it is useful to sell debt funds that have been held for more than 1 year before Apr 2015 and buy back perhaps into the same funds so that one can lock in the gains at a lower tax rate.
Hello Raghu,
We have updated the blog post. You may check now. it is effective April 1 2014. So redemption amde this fiscal will be subject to this change. We will be sending out a detailed note to all FundsIndia investors on their strategy to combat this.
Hi Vidya,
Need answer on the below 2 questions as well –
If a Debt fund is getting redeemed anytime in this financial year post 1 year of holding, then will the current taxation apply?
Double indexation FMPs which got invested in March 2014 and would mature in April 2015, would taxed as per the new tax rate?
Rgds
Hi Shiraj,
Proposal will apply for both 1 and 2.
But pl. wait for some time to see if the FM is reconsidering this…before you act on it.
Does not make any sense to apply LTCG on current rules for investment made before 1st April 2014 and redeemed within 3 years. To be precise new LTCG rule should be effective for investment made from 10th July 2014 only and not before that. FM is penalizing all investors and someone need to look into seriously. Investor like me not planned for these kind of surprises of tax. Redemption date should not be the only variable rather investment date is also important.
In my reading of the budget summary it looks like there is no difference in treatment for both liquid funds versus other short / medium or long term debt funds. All of these if sold before 3 years attract marginal rate taxes. Is this correct? Or does one get the LT cap gain tax rate for liquid funds and debt funds with short-term maturities assuming one holds the funds themselves for more than a year? In this case are we technically not getting double taxed – DDT plus tax on the gains themselves?
Hello Raghu, your first point is correct.
On DDT, there is no double taxation. dividend once taxed (as DDT) is not taxed again.
thanks, Vidya
this budget is just a copy of chidambaram’s budget ,not anything new ..
Hello Vidya,
I am an existing customer of fundsindia falling in the 30% tax bracket. I recently intended to invest a lumpsum amount (5 lakhs) in a liquid fund with the idea of moving this gradually to equity funds by way of investing small monthly installments. However the new tax rules with respect to liquid funds taxation has left me confused since I now understand that the debt funds will be at par with bank fixed deposits in terms of taxation, if it is held for less than 36 months. Please advice on the right approach to accomplish this and also advice if this will be tax efficient anymore. Appreciate if you could kindly illustrate this with an example in the current scenario for a clearer understanding.
Many Thanks,
Srinivasan
Hello Sir, apologise for the delayed reply. As a customer, kindly use the ‘advisor appointment’ tab in your account (under help) for us to respond faster and keep track of your queries. The blog is more a discussion forum.
First, liquid funds are ideally comparable with savings account interest and not FD. Currently the liquid fund returns at 8-9% are still superior even post a 30% tax (at 6.3%) to the 4% on savings account rate. While liquid funds are not comparable with FD, when FD rates fall below 9% (SBI already has) then, any FD sweep may not be a superior option.
That said, if you are investing for long term of say 7-10 years, we see no harm in simply investing the lump sum in equities or at best in 2-3 instalments; if you do not mind short-term volatility. It is unlikely to get it wrong in equities over such long periods. thanks, Vidya
Hi Vidya,
I need your help to understand the exact meaning of “Budget 2014 – Roll over of investment for Section 54 and 54F exemptions to be restricted to one house only”.
I had two houses one where I was staying and other was on rent, now I have moved to other city. I have sold my one house in May this year after 10 years from purchase and going to invest whole amount in another house in my new city which shall be used for own residential purpose only.
I want to know whether I have to pay capital gain on my LTCG from the sale of my house property.
Regards,
Pravin Gundewar
hello Pravin, as long as you invest the gain in 1 house and not 2 houses, you will be eligible for 54, 54F benefit. thanks, Vidya
Dear Vidya,
You were quick of the blocks on the new debt tax! I was planning to put some savings bank amount in liquid funds and do an STP into equity funds, do you think this still make sense or having an auto sweep savings a/c and a SIP to an equity fund makes more sense now??
Hi Sid,
Just do a back of envelope calc. If the deposit under auto sweep delivers below 9% (which is what liquid funds deliver), then STP would still be superior. When liquid rates fall, then the call would arise, although strictly speaking liquid funds are substitutes for savings account and not FD. thanks, Vidya
Would the tax rebate of 2.5Lacs effective from 1-April-2014 or 1-April-2015. Also, 1.5Lacs under Sec 80C would be effective from 1-April-2014 or 1-April-2015.
Hello Ramesh, Sorry about the delayed response. Both are effective April 1, 2014. Thanks, Vidya
Hi vidya,
If this budget is applicable from Apr’15 then wt is the use of this budget. In case of budget for FY15-16, if 80C, housing loan interest and tax slap are reverted back wt it was earlier then how FY14-15 budget will come in picture. It’s just like making ppl fool by Gvt.
Thanks,
Ajeet
Ajeet, pl. refer to our posts after this one. The change is applicable from April 2014 and for debt funds taxation change it is effective July 11, 2014. thanks, Vidya
Hi Vidya,
Thanks for the article. I was waiting for this since the budget anouncement was over.
But I am still confused with the effective date for this budget. As you mentioned that It is effective from 1st April, 2015 then where is the budget for this financial Year (2014-2015) ? Will current financial year continue with the Intrim budget provided by UPA govt ? in that case will we get the Basic Tax Excempt of 2.5 Lakh and section 80c deduction of 1.5 Lakh during the financial year 2014-2015 ?
Thanks & Regards,
Jayabrata
Hi Jayabrata the budget is for 2014-15…
For 80C and non equity fund capital gain taxation I am reproducing what is stated in the document:
“These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year
2015-16 and subsequent assessment years”
That is what makes it confusing. We will update you when there is clarity on this.
HI Vidya,
Thank you for making the Capital gain changes in debt funds so clear and so fast. Believe me, I was searching everywhere and nowhere found the explanation so clear as you have given.
Is this budget w.ef.from April,2015 or April,2014
You have mentioned it April,2015
Hello Dalip, The budget document mentions it as April 1 2015.
This is for A.Y. 2015-16, thus applicable for any redemptions in non-equity funds done this year (FY 2014-15, i.e. AY 2015-16).
Hi Vidya,
Then what about the budget that will happen during Feb of next year like it happens every year unlike this year because of elections? Will all its proceedings be effective from April 1, 2016? or even that will be for April 1, 2015?
Hello Ravi Shankar,
Next year, it will be effective April 2015. Since we have already crossed a quarter and such tax changes cannot be retrospective, it is effective APril 2015 this time.
I think this budget is For FY 2014-15,
Budget Documents are correct or there is a misprint.
Vidya..I think you need to check again…This budget is for FY 14-15 and the tax slabs will be effective for this FY.
Hi Sheeba, the tax slabs are effective this year no doubt. For 80C and non equity fund capital gain taxation I am reproducing what is stated in the document:
“These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year
2015-16 and subsequent assessment years”
That is what makes it confusing. We will update you when there is clarity on this.
What about the redemptions of Debt mutual funds made from 1st April 2014 to date. Is it 12 or 36 months for Long term capital gain!!
Hello Simi,
Any sale/redemption made from April 1, 2014 will have to be >3 yrs holding to qualify for LTCG. Else it will be STCG.
Hi Vidya Ma`am,
I have redeemed Units on 29/06/14 after 1.5 Yr from IDFC Dynamic Bond Fund with a LTCG as redeemed after >1 yr. So now how that gain would be treated now, i mean STCG or LTCG?
And i also want to ask you that i am still holding some Debt MF Units since 1.5 to 2 yrs and was planned to redeem it very soon. I will fall into 20% Tax Slab if STCG implied on my that Gain.
kindly suggest me on my holding please.
Thanks & Regards,
Arti Singh
Hello, Unless the govt. reconsiders this proposal, your gain will be taxed for units redeemed in June. It will be STCG. For the dynamic bond, my suggestion would be that you hold for 1 more year (until 3 yrs that is) or at least until you see double digit returns, which likely when rates fall. That way even if you don;t get indexation, the superior returns will make up for the tax. But pl. wait for any change in stance in this regard by FM.
thanks,
Vidya
Does not make any sense to apply LTCG on current rules for investment made before 1st April 2014 and redeemed within 3 years. To be precise new LTCG rule should be effective for investment made from 10th July 2014 only and not before that. FM is penalizing all investors and someone need to look into seriously. Investor like me not planned for these kind of surprises of tax. Redemption date should not be the only variable rather investment date is also important.
This amendment will take effect from 1st April, 2015 and will accordingly apply, in relation to the assessment year 2015-16 and subsequent assessment years.
What is the meaning of above statement and how we can interpret the taxation. Does the statement says it is effective from 1st April 2015 means redemption after that or investment after that falls under new LTCG rules?
Appreciate if you could clarify.
Hello Selvan, Pl. see the update made in the blog now (in the same article). It will answer your query. thanks, Vidya
In my reading of the budget summary it looks like there is no difference in treatment for both liquid funds versus other short / medium or long term debt funds. All of these if sold before 3 years attract marginal rate taxes. Is this correct? Or does one get the LT cap gain tax rate for liquid funds and debt funds with short-term maturities assuming one holds the funds themselves for more than a year? In this case are we technically not getting double taxed – DDT plus tax on the gains themselves?
Hello Raghu, your first point is correct.
On DDT, there is no double taxation. dividend once taxed (as DDT) is not taxed again.
thanks, Vidya
Hi Vidya, there was a point of Dividend Distribution Tax mentioned. I am given to believe that DDT would increase by 4 – 5% and that would be effective 1st October 2014. Just wanted to know is it applicable for all debt and liquid funds?
Hello Shiraj,
Yes, the changed calculation of DDT will be applicable for debt funds too.A note we will be sending out to investors in this regard, will have a detailed explanation. thanks,
Hi Vidya,
Need answer on the below 2 questions as well –
If a Debt fund is getting redeemed anytime in this financial year post 1 year of holding, then will the current taxation apply?
Double indexation FMPs which got invested in March 2014 and would mature in April 2015, would taxed as per the new tax rate?
Rgds
Hi Shiraj,
Proposal will apply for both 1 and 2.
But pl. wait for some time to see if the FM is reconsidering this…before you act on it.
It does look like the 3 year LTCG comes into effect after April 2015. When you post a clarification on this can you explain whether it is useful to sell debt funds that have been held for more than 1 year before Apr 2015 and buy back perhaps into the same funds so that one can lock in the gains at a lower tax rate.
Hello Raghu,
We have updated the blog post. You may check now. it is effective April 1 2014. So redemption amde this fiscal will be subject to this change. We will be sending out a detailed note to all FundsIndia investors on their strategy to combat this.
Hi vidya,
If this budget is applicable from Apr’15 then wt is the use of this budget. In case of budget for FY15-16, if 80C, housing loan interest and tax slap are reverted back wt it was earlier then how FY14-15 budget will come in picture. It’s just like making ppl fool by Gvt.
Thanks,
Ajeet
Ajeet, pl. refer to our posts after this one. The change is applicable from April 2014 and for debt funds taxation change it is effective July 11, 2014. thanks, Vidya
Dear Vidya,
You were quick of the blocks on the new debt tax! I was planning to put some savings bank amount in liquid funds and do an STP into equity funds, do you think this still make sense or having an auto sweep savings a/c and a SIP to an equity fund makes more sense now??
Hi Sid,
Just do a back of envelope calc. If the deposit under auto sweep delivers below 9% (which is what liquid funds deliver), then STP would still be superior. When liquid rates fall, then the call would arise, although strictly speaking liquid funds are substitutes for savings account and not FD. thanks, Vidya
Hello Vidya,
I am an existing customer of fundsindia falling in the 30% tax bracket. I recently intended to invest a lumpsum amount (5 lakhs) in a liquid fund with the idea of moving this gradually to equity funds by way of investing small monthly installments. However the new tax rules with respect to liquid funds taxation has left me confused since I now understand that the debt funds will be at par with bank fixed deposits in terms of taxation, if it is held for less than 36 months. Please advice on the right approach to accomplish this and also advice if this will be tax efficient anymore. Appreciate if you could kindly illustrate this with an example in the current scenario for a clearer understanding.
Many Thanks,
Srinivasan
Hello Sir, apologise for the delayed reply. As a customer, kindly use the ‘advisor appointment’ tab in your account (under help) for us to respond faster and keep track of your queries. The blog is more a discussion forum.
First, liquid funds are ideally comparable with savings account interest and not FD. Currently the liquid fund returns at 8-9% are still superior even post a 30% tax (at 6.3%) to the 4% on savings account rate. While liquid funds are not comparable with FD, when FD rates fall below 9% (SBI already has) then, any FD sweep may not be a superior option.
That said, if you are investing for long term of say 7-10 years, we see no harm in simply investing the lump sum in equities or at best in 2-3 instalments; if you do not mind short-term volatility. It is unlikely to get it wrong in equities over such long periods. thanks, Vidya
Would the tax rebate of 2.5Lacs effective from 1-April-2014 or 1-April-2015. Also, 1.5Lacs under Sec 80C would be effective from 1-April-2014 or 1-April-2015.
Hello Ramesh, Sorry about the delayed response. Both are effective April 1, 2014. Thanks, Vidya
Hi Vidya,
I need your help to understand the exact meaning of “Budget 2014 – Roll over of investment for Section 54 and 54F exemptions to be restricted to one house only”.
I had two houses one where I was staying and other was on rent, now I have moved to other city. I have sold my one house in May this year after 10 years from purchase and going to invest whole amount in another house in my new city which shall be used for own residential purpose only.
I want to know whether I have to pay capital gain on my LTCG from the sale of my house property.
Regards,
Pravin Gundewar
hello Pravin, as long as you invest the gain in 1 house and not 2 houses, you will be eligible for 54, 54F benefit. thanks, Vidya
this budget is just a copy of chidambaram’s budget ,not anything new ..