Post the much-awaited Union Budget 2016, there has been cheer and grudge across the corporate sector. Many salaried individuals are puzzled whether they have actually benefited from the newly released tax proposals or not. The following blog highlights the many initiatives that the employees must know to shape a better future for themselves.
Key highlights of the budget 2016:
- Employees with a CTC of Rs. 5 lakh a year will be now entitled to a tax relief of Rs. 5,000, raised from Rs. 2,000.
- The Government would pay 8.33% towards EPS or Employees’ Pension Scheme of all the semi-skilled and unskilled workers in their first three years of employment, providing Rs.1,000 crore for the initiative.
- The tax exemption on HRA (House Rent Allowance) will rise to Rs. 60, 000 per annum from Rs. 24,000 previously under 80GG.
- 15, 000 will be allowed as a pensionable salary for employees serving a job for 35 years.
- Income Tax rebate under Section 87 A will rise to Rs. 5, 000 from Rs. 2000, and applicable only to employees having a taxable income not over Rs. 5 lakh.
- With an aim to benefit 2.5 lakh entrepreneurs, including scheduled caste and scheduled Tribe women, the government has proposed to fund Rs. 500 crore for these startups.
- The Bill will also improve the budding environment for start-ups wherein the registration of firms will be completed in just one day.
How Employees benefit?
CTC, or Cost to Company is the cost, which the employer incurs to have an employee on the payroll. To get the maximum benefit from the budget proposals, all the non-government employees can save tax liability and boost their take home salary. How this can be done? Not down where you can save.
Live in a flat offered by the company (if you are entitled to this facility) instead of buying a new home or taking a home on rent. Employer-provided home will leave employees with a tax benefit. Since HRA is one of the important components of CTC, employees on rent can avail the benefit of exemption against it wherein, only the balance amount is taxable. However, the exemption is available to those whose home is located in either of the four cities including Delhi, Kolkata, Chennai and Mumbai. To claim HRA exemption, obtaining a copy of landlord’s PAN card is required if the annual rent exceeds Rs. 1 lakh.
- Leave Travel Concession
LTC or Leave Travel Concession is basically the tax exemption, which employees can avail for their annual vacations within the country. Available only for the economy class air-ticket, the reimbursement of employees’ travel expenses cannot include hotel, food or any other expenses made during the vacation. LTC is provided to all the salaried employees. Hence, taking a break from work this year can help you save a lot of money and spend on other luxuries. Even if an employee is not entitled to leaves, he or she has an option to get the leaves reimbursed as well. However, this does not help in saving any tax. Maximum exemption on travel expense is Rs. 3 lakhs and has a lifetime exemption limit. So, don’t worry if you are retired or going to be retired.
- Tax benefit on Transport
Tax exemption is available to employees who make official travels. The limit is Rs. 1600 per month and the employee can get the same reimbursed after submission of bills to the employer.
Retirement Benefits for Employees
Employer’s contribution to provident fund is taxable from April 1, 2016, if it exceeds to Rs. 5 lakh per year. From February 10, 2016, employee is entitled to withdraw the full amount of his PF only after 58 years of employment. However, PF withdrawal at the time of job resignation will subject to conditions, to be disclosed soon. Remember, 40% of the PF balance will still be tax free and 60% will be taxable. There are expectations of amendments though. Also released is the latest scheme by PF authorities where a 12-digit UAN (Universal Account Number) will be allotted to employees with the help of which accumulated funds from previous account will easily be transferred and to the new employer’s account. This is not taxable.
This is a very good option to avail the tax exemption, which is Rs. 10 lakh. In this case, an employee switching a job after continuous service of 5 years or get retired is entitled to a gratuity amount. Remember, this is a lifetime exemption and can be claimed from any previous employer as well.
Realize that tax breaks on savings can work like great incentives for you in the long run. Investing some part of your salary in certain plans can help you save and earn as you desire. Some of the plans include:
- NPS or National Pension Scheme
- PPF or Public Provident Fund
- NSC or National Savings Certificates
- GMS or Gold Monetization Scheme
- Medical Insurance Policy
- Market investments
Reactions from the top IT employers on Budget 2016:
Ravinder P Singh, Director, Solutions Strategy & Business Development
“Dell being a global leader in ICT Technology, we find this as a good opportunity to work with both the government and private sector and be an active player in this journey.”
Sudhin Mathur, Director, Smartphones, Lenovo Mobiles Business Group
“The Union Budget for FY 2016-17 is a big step in terms of aiding the common man, small entrepreneurs and companies looking to invest in India. “
- Intel India
Debjani Ghosh, Vice President, Sales and Marketing Group and Managing Director for South Asia at Intel
“This budget, unlike any other, has not treated technology in isolation but integrated the effective use of technology across all the strategic imperatives in keeping with the intent of a Digital India.”
The rolled out tax exemptions will not only reduce litigation but will also make Indian organizations work more globally. The budding entrepreneurs can now plan out their startup structures in a more confident way and employees, on the other hand will now be able to reap the tax benefits and shape a better career for themselves.