Incentives for senior citizens in Budget 2014
Measures by the government in the fields of healthcare, social security and direct taxes are likely to benefit senior citizens
The Government unveiled Budget 2014 with a pragmatic recognition of the needs of the common man and a thrust towards structural reforms. Some of the incentives that would benefit senior citizens amongst others included changes proposed in relation to social security, healthcare and direct taxes.
Certain measures announced by the finance minister as a step towards social security included providing minimum pension of ₹ 1,000 under the Employee Pension Scheme and extension of Varishtha Pension Bima Yojana (to be revived until August 14, 2015). The announcements included a proposal to set up a committee to examine and recommend how the amount belonging to senior citizens not claimed on their demise or for want of payment instruction, lying with PPF, post office, savings scheme etc can be used for the welfare of senior citizens. The committee is required to issue its report latest by December 2014. A measure has been initiated by the retirement fund body — Employees’ Provident Fund Organisation ( EPFO) to allot a universal account number (UAN) to all its members for their convenience and to facilitate portability of provident fund accounts.
Over and above the proposals of social security and healthcare, the direct tax proposals of Budget 2014 have been tax-friendly. The tax proposals as contained in Finance (No 2) Bill, 2014 have been passed in both houses of parliament and have received the assent of the president, and are now effective. On a go-forward basis now, the basic exemption limit for individuals who are residents and above the age of sixty years but less than 80 years would stand increased to ₹ 3 lakh as against the earlier threshold of ₹ 2.5 lakh, resulting in a tax saving of approximately ₹ 5,000.
Apart from the increase in exemption limit, the changes in the Income Tax Act offers increased deduction for interest while computing income under the head ‘house property’. This area has been overlooked since a decade and with high interest rates and tight liquidity, the limit of deductions has been revised. Under the earlier tax regime, deduction of interest on housing loan for self-occupied property was restricted to ₹ 1.5 lakh per annum which has now been increased to ₹ 2 lakh. Higher deduction will also be allowed under section 80C for principal repaid on such housing loan, the limit for which has now been increased to ₹ 1.5 lakh per annum from the earlier limit of ₹ 1 lakh.
The ability to seek a higher deduction for interest as well as on the principal repayment enables a higher retention of much needed disposable funds for the senior citizens and tax payers at large.
Another aspect that merits attention is a change that has been brought in in relation to reinvestment in another house. While at times there is a desire to transfer the existing house to buy a larger house to accommodate the growing family, there are cases where the house that is owned by the elder in the family is transferred to acquire more than one house to accommodate family needs. Based on judicial precedent, prior to the change in law that is contained in Budget 2014, it was possible to claim benefit of capital gain exemption under section 54 where the investment was made in a larger house by combining two or more houses and regarding the same as a house. However, in view of the recent amendment, benefit of exemption would now be available only in respect of one house. While these provisions have admittedly been enacted to provide better clarity, there could still be some ambiguity around what constitutes one house.
The current income tax legislation also contains an enabling provision that provides a window for a taxpayer to have regular flow of income. The existing tax regime provides for a tax-friendly scheme in the form of reverse mortgage of house property. There’s another amendment that could have implications for tax payers who sought to transfer a capital asset but the transaction did not fructify for various reasons, resulting in the advance being paid by the seller being forfeited. The amended tax legislation (post Budget 2014) provides that advance money received and forfeited would be taxable in the year of forfeiture, unlike the previous provision that permitted the same to be adjusted against the cost of the asset, resulting in deferral till final sale of the capital asset.
Certain measures announced by the finance minister as a step towards social security for senior citizens included providing minimum pension of 1,000 under the Employee Pension Scheme and extension of Varishtha Pension Bima Yojana (to be revived until August 14, 2015).