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How Budget 2009-2010 will Affect Your Savings? Research Team | Posted On Thursday, July 09,2009, 07:41 PM

How Budget 2009-2010 will Affect Your Savings?



How budget 2009-2010 will Affect Your Savings?

Following are the factors that are going to affect your savings.

  1. Tax Exemption Limit
  2. Elimination of Surcharge
  3. Gift Tax
  4. Abolishment of Fringe Benefit Tax (FBT)
  5. Relax in Wealth Tax
  6. Invest in Gold and Gold ETFs
  7. Start Investing early
  8. Buy Health Insurance for your Parents
  9. Deduction in respect of interest on Education Loan
  10. Refinance your home loan
  11. PPF investments
  12. Deduction under Section 80DD

Tax Exemption Limit

Personal income tax exemption limit for senior citizens has been raised by Rs 15,000 and Rs 10,000 for all others. Following table will help you to understand the Tax exemption for different category;
Exemption Limit
Male Taxpayers
Rs. 1,60,000
Female Taxpayers
Rs. 1,90,000
Senior Citizens
Rs. 2,40,000

Elimination of Surcharge

Earlier there was a Surcharge of 10% for those earning annual income above Rs 10 lakhs. But now the 10% surcharge on taxes for those earning annual income above Rs 10 lakhs will no longer exist. This will lead to a tax saving for higher income earners.

Gift Tax

Under section 56(2) (vi) all the gifts received by an individual or HUF without consideration and if the aggregate amount of such gifts received exceeds Rs. 50,000 in a financial year, the entire amount is taxable as other income. That is if a sum of money received as gift by an individual or HUF (Hindu Undivided Family) without consideration exceeds Rs. 50,000 the whole amount is chargeable to tax. If the amount is Rs. 50,000 or less, nothing would be chargeable to tax. So avoid big gifts from friends.  There are many exceptions to Gift Tax they are;


There are many exceptions to the provision of section 56(2) (vi) for gifts:

  1. Received from relatives (List of Relatives is given below)

  2. Received on the occasion of the marriage,

  3. Received by will or inheritance,

  4. Received from local authority,

  5. Received from any foundation, university or educational institution, hospital or medical institution, or any trust or institution referred to in section 10(23C), and

  6. Received from a charitable institution registered under section 12AA.

List of Relatives

Gifts from following relatives are not considered as income:

  • Parents

  • Brother

  • Sister  

  • Spouse

  • Any linear ascendant or descendant of the individual or spouse.

Abolishment of Fringe Benefit Tax

If you are happy with the increase in Tax exemption limit in all categories, here is a trap that could have escaped your attention: abolition of Fringe Benefit Tax (FBT). FBT on the value of fringe benefits provided by employers to employees has been abolished. While the employers do not have to pay the tax, the tax burden has shifted to employees in case of certain perquisites, puffing up their taxable income. You would do well to take this into account when you carry out your annual tax-planning exercise Reimbursements will be taxed as perquisites at the marginal tax rate. This might increase the tax burden on people.

Wealth Tax

Increase in wealth tax limit is an advantage for the taxpayers. If you were paying 1% tax on your wealth exceeding Rs 15 lakh, you can relax now. Thanks to the Budget, now this limit has been enhanced to Rs 30 lakh. Before you had to pay tax if your wealth is more than Rs. 15,00,000. But now it Rs. 30,00,000, only if your wealth is more than Rs. 30,00,00, you have to pay tax.

Invest in Gold and Gold ETFs

Gold is still a safe for Investment Avenue for you because the hike in customs duty on gold bars from Rs 100 to Rs 200 per 10 gram means that the cost of purchasing gold ETF (Exchange Traded Fund) units could go up marginally. However, the fact is that gold is expected to continue as a safe shelter to park your money in the coming months  

Start Investing early

Normally taxpayers will take entire year to plan for their Tax, most taxpayers postpone the exercise their investment till March 31 – the last date for making investments allowed as deductions under Section 80C. But remember that the time you have wastes by thinking about the investment will course you to lose a great chance of making money. Investing in any Tax Saving scheme is not only a way to save the Tax, but also an investment that helps you to make profit. So try to invest as early as possible, this can help you to generate more profit.

Buy Health Insurance for your Parents

Buy a Health Insurance (Mediclaim) for your parents to enjoy twin benefits. First, health covers can come in help of you at a time when healthcare costs are increasing; it will help to pay the hospital charge of your parents when needed. Secondly, you can enjoy a tax deduction of Rs 30,000 over and above the Rs 30,000 limit that you enjoy on your individual cover provided you fund their insurance from your bank account.

Interest Deduction on Education Loan

Annual deduction in respect of interest on loans taken for higher education purposes has been expanded from the current limited list of courses to cover all fields of studies, including vocational studies, pursued after completion of schooling.

Refinance your home loan

Switching lenders makes sense for home loan borrowers only if the new rate is 1-1.5% lower than the existing loan rate, as it involves certain charges. It consists of prepayment penalty with the existing lender at 1-2 % of the loan outstanding. The processing fee adds to another 0.50-1 % of the total loan amount. Factor in these costs and then calculate to see if it makes financial sense to change lenders.

PPF Investments

Invest in Public Provident Fund (PPF) for a decent rate of return and for peace of mind because investments in PPF are backed by superior guarantee and cannot be attached in any legal action. Invest in PPF before 5th of every month to earn interest for the full month.

Section 80DD Deduction

Annual deduction relating to maintenance, including medical treatment, for a dependent with severe disability (more than 80%) has been raised to Rs 1 lakh from the current Rs 75,000.

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