Budget: Investment in NPS will get tax exemption

NEW DELHI: The forthcoming Budget is set to make the New Pension System (NPS) More on Tax News
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tax exempt on contribution and accumulation, as the government More on Tax News
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looks to bring it 
closer to other such long-term schemes such as the public provident fund scheme and generate interest in the new system, which has so far elicited a lukewarm response. 

With regard to tax exemptions during NPS withdrawal, finance minister Pranab Mukherjee is likely to make a statement on NPS enjoying equitable tax treatment with other long-term savings instruments in the new Direct Tax Code expected to be unveiled next year, said a government official who asked not to be named. 

NPS is an ultra-low-cost funded pension system in which a common recordkeeping agency maintains individual pension funds of subscribers, who can choose from alternative pension fund managers and asset classes for investments. 

It has been in operation for a year for civil servants recruited after January 1, 2004, and has now been opened up to all Indians. Contributions to NPS are expected to be clubbed in the cumulative savings up to Rs 1 lakh exempted from tax under Section 80 C of the Income Tax Act. Right now, 80C exemption is offered to various investments such as public provident fund (PPF) and National Savings Certificate (NSC). 

Currently, the tax benefit is available on contributions under Section 80CCD only to salaried taxpayers and that too is conditional to the deposit not exceeding 10% of the salary. 

During the period of accumulation, NPS is exempt from tax, just as other long-term saving schemes. However, as of now, withdrawals from NPS are taxable, unlike in the case of say PPF, creating a disincentive for savers. This anomaly can be fixed either by exempting NPS withdrawals also from tax or by bringing withdrawals from other long-term saving schemes also under taxation. 

Experts have recommended that all long-term savings be brought under the tax regime dubbed E-E-T, exempt during contribution, exempt during accumulation and taxed during withdrawal. 

Pension fund regulator PFRDA has made a strong pitch to the government for giving tax benefits to NPS. It wants a level playing field for all long-term savings in the tax laws. 

NPS, which was hitherto applicable to all central and state government employees since 2004, is now available to all citizens from May 1. The government is also expected to reintroduce the PFRDA Bill, which will give legislative teeth to the regulator. 

The Bill, which could not be passed owing to opposition from the Left parties, lapsed with the dissolution of the 14th Lok Sabha.

Sources: ECONOMIC TIMES

Finance Budget for 2009-10 will be presented on July 6, 2009

Finance Budget for 2009-10 will be presented on July 6, 2009

The Budget Session of Parliament will commence from July 2 and the General Budget for 2009-10 will be presented to the Lok Sabha on July 6. The schedule for the Budget Session of Parliament was decided at a meeting of the Union Cabinet chaired by Prime Minister Manmohan Singh in New Delhi on Monday.

The Railway Budget will be presented by Railway Minister Mamata Banerjee on July 3.

The session, which will start from July 2 with the presentation of the Economic Survey, would last till August 7.

The government hopes to pass the budget before July 31 to avoid the need for a fresh vote-on-account.

Presentation of the Economic Survey, the Railway Budget and the Union Budget would be followed by a discussion on the demands for grants of select ministries.

The Union Cabinet decided to recommend the dates of the Budget Session and the schedule to President Pratibha Patil.

This will be the first budget of the United Progressive Alliance government in its second term at the Centre.

Last week, the prime minister had written to the finance ministry to ensure that the Budget 'adequately and appropriately' reflect the government's priorities set out in Patil's address to the joint sitting of Parliament.

In her address, the President had highlighted the UPA government's ambitious agenda like providing rice or wheat at Rs 3 per kg for BPL families, enlarging the coverage of the rural employment guarantee scheme and giving more focus on building infrastructure to bring the economy back on the high growth track.

News Broadcasters Association demanded exemptions from service tax

News Broadcasters Association has demanded exemptions in service tax, fringe benefit tax and hike in government advertisement rates as part of its pre-budget proposals. The proposals have been submitted before the finance ministry. 

Chief among them is the plea that advertisements in news and current affairs channels should not attract service tax. Arguing that the reach of electronic media -- with 600 million TV viewers -- was every high, NBA pointed out that service tax was hurting the industry. 

The Association also said that government should extend its "stimulus package" for the print media to electronic media as well. The government had announced a 10% hike in advertisement rates as special relief to documentary proof of loss of revenue in non-government advertisements with a waiver of 15% agency commission on DAVP advertisements with effect from February 28 to June 30, 2009. This relief was only for the print media. 

The broadcasting industry has also asked for reduction in fringe benefit tax from 20% to 5%-7% as in the case of pharma and software industries.

Home loan tax break limit may be raised

NEW DELHI: The government is considering a proposal to hike income-tax exemption Make these charges part of your budget available for interest payment on home loans to Rs 2.5 lakh
a year, to boost demand and rebuild the slowdown-hit housing industry.

The ministry of housing and urban development has urged finance minister Pranab Mukherjee to make an announcement to this effect as part of his Budget presentation in early July, a government official said on condition of anonymity.

At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

The government has already identified housing as one of its focus areas, a fact highlighted by President Pratibha Patil in her address to both the houses of Parliament.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh.

Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh.

If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year. This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable.

However, as per existing norms, the tax benefits start flowing in only after the construction of the house is completed, which usually takes 2-3 years in case of builder flats.

The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand.

The Budget documents do not provide an estimate of the revenue forgone on account of this exemption, but it is unlikely to be very significant.

Of the total Rs 38,107-crore tax revenue forgone on account of tax exemptions to individuals in 2007-08, nearly Rs 30,000 crore is on account of Section 80C benefit, one component of which is principal repayment on housing loan.

The housing sector in the country has been hit hard by demand slowdown, following a rise in interest rates.
Besides lowering of home loan interest rates, the industry has been continuously pitching for greater tax benefit, as it had the potential of stimulating demand.

sources Economic Times dated 15th June 2009