Now Save Up to Rs.36000 With New Tax Slabs of The Budget 2014-15.

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All About New Tax Slabs

Now Save Up to Rs.36000 With New Tax Slabs of The Budget 2014-15

Income Taxpayers can now make bigger savings, after the announcement of the Budget 2014-15 by our finance minister Mr. Arun Jaitley.

Now Save Up to Rs.36000 With New Tax Slabs of The Budget 2014-15.

According to the Budget:

  • The basic assumption limit increased up to Rs. 2.50 lakhs that were earlier Rs. 2 lakhs.
  • Mr. Jaitley also increased long-term investments under Section 80C of the Income Tax Act from Rs. 1 lakh to Rs. 1.50 lakh.
  • The FM also increased the tax-free cap on interest paid on housing loan from Rs. 1.5 lakh to Rs. 2 lakh.

As per the above three major announcements:

  • Total savings will raise up to Rs.36050 for the individuals, whose yearly tax income is Rs. 10 Lakhs.
  • The individuals, who fall under the category of taxable income of Rs. 5 lakh to Rs. 10 lakh, will save up to Rs.25750.
  • Individuals, whose taxable income is between Rs.2- Rs.5 lakh will save up to Rs.15450.

In other announcements;

  • The Finance Minister proposed an increment in PPF (Public Provident Fund) in one financial year. PPF is the most popular tax saving scheme.
  • The PPF amount is tax-free at all three stages. The investment is eligible for tax deduction under Section 80C.
  • The interest earned is also tax-free, and so are the withdrawals.
  • Mr. Jaitley said that the government will forego around Rs. 22,000 crore on account of these changes.

We all love buying assets. These include property, gold, stocks, debentures and Mutual Funds. If you sell these assets for a price that is higher than the price at which you purchased them, you incur a gain. This is called a capital gain. In simple words, the gain or profit that you make when you sell any asset is termed as a capital gain. Since this is not a recurring income (such as your salary), the taxation is different. Here, we try to help you understand how capital gains have to be calculated and how taxation of these gains works.

Now Save Up to Rs.36000 With New Tax Slabs of The Budget 2014-15.

What is a capital gain?

As mentioned earlier, a capital gain is the difference between what you paid while purchasing an asset and what you received upon selling the asset.  Any profit or gain that comes out of sale or transfer of a capital asset will be a capital gain. Capital assets include gold, shares, Mutual Funds, property, among others. Here, we will be dealing with capital gains related to the buying and selling of property.

Capital gains are of two types. One is Short Term Capital Gain (STCG) and the other is Long Term Capital Gain (LTCG). The amount of time you hold the asset for, will determine whether the capital gain you incur is short-term or long-term.

How to calculate STCG

If you sell the property within three years of purchasing it, it will be subject to STCG tax.  Here’s the formula for STCG.

STCG = Sale price of the property – (cost of purchase of property + cost of improvement of property + any other expenditure incurred on sale or transfer)

How to calculate LTCG

If you sell a property after holding it for more than three years, then it becomes a long-term asset and LTCG will apply.

Gross LTCG = Sale price of property – (indexed cost of property when it was purchased + indexed cost of improvement of property + any other expenditure incurred on sale or transfer)

Net gains = Gross LTCG – Exemption (if availed) u/s 54 or 54EC or 54F

Additional Reading: How To Reduce Your Existing Home Loan Rate

Concept of indexation for LTCG 

You must understand that when calculating LTCG you must take into account the indexed cost of acquisition of the property and not the actual cost of acquisition. This is because the value of money changes over time. The price you paid for the property years ago might actually be worth much more as inflation tends to inflate prices over time. Don’t understand? Let us explain.

Inflation in the country reduces the purchasing power of your money as years go by. For example, you could buy a movie ticket with Rs. 50 a decade ago. Today, you can’t even get a softie cone at a multiplex at that price. That is why you need to find out what price you would have actually paid for the property if you had purchased it today.

Now, how to find the indexed cost of your property? The answer: you have to use the Cost Inflation Index (CII) to do that. This index will give you an idea of how costs have become inflated over time. The central government of India notifies the value of this index every year. The base year for the index is 1981-82. So, the index started at 100 at that point in time.

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