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Budget FY 2015-16 – Tax on Salary

A new tax year has begun and it is time to start implementing the budget proposals related to tax on salary. As you are aware, the Union Budget for FY 2015-16 was tabled in the Parliament by the Finance Minister of India on 28-Feb-2015. Here are the key proposals related to computation of tax on salary which payroll managers need to consider for FY 2015-16.

1. The tax slabs remain the same.

The tax rates for salaried employees (below 60 years of age) for FY 2015-16 shall be the same as those for FY 2014-15.

The tax rates for salaried employees (aged 60 years and above but below 80 years) for FY 2015-16 are as follows.

Note:
1. The Education cess including Higher Education cess stays at 3%.
2. Tax relief under Section 87A – the tax credit of Rs 2,000 is available for FY 2015-16 as long as the total income does not exceed Rs 5 lakh for the year.

2. Increase in surcharge.

In case the total taxable income goes beyond Rs 1 crore in the year, a surcharge of 12% (subject to marginal relief) is to be deducted – the surcharge was 10% in FY 2014-15.

3. Deduction under Section 80C.

The maximum deduction under 80C (Life insurance premium, PPF, investment in National Savings Certificate, interest from notified bank deposits, principal repayment on housing loan, etc.) stays at Rs 1.5 lakh for 2015-16. Deposit made in the Sukanya Samriddhi Yojana Account by a parent or a legal guardian of a girl child has been included in the list of Section 80C deductions.

4. Deduction under Section 80CCC.

The maximum deduction under 80CCC (Deposits in pension fund) has been increased to Rs 1.5 lakh for 2015-16.

5. Deduction under Section 80CCD.

80CCD(1) – The maximum deduction available for an employee on account of his or her contribution to National Pension System (NPS) is Rs 1,50,000 or 10% of employee salary (Basic plus Dearness Allowance), whichever is lesser.

80CCD(1B) – Additional deduction (over and above deduction under 80CCD(1)) up to Rs 50,000.

80CCD(2) – Employer contribution to NPS – The maximum deduction available is 10% of employee salary. Salary means Basic plus Dearness Allowance.

Note:
1. As per Section 80CCE, the aggregate deduction under sections 80C, 80CCC and 80CCD(1) cannot exceed Rs 1.5 lakh per annum.
2. The total deduction under Section 80C, 80CCC, 80CCD(1) and 80 CCD(1B) cannot exceed Rs 2 lakh per annum.
3. Any deduction under Section 80CCD(2) is outside of the above limit.

6. Deduction under Section 80D – Medical insurance premium.

1. Employee, spouse, and dependent children (no senior citizens): The maximum available deduction is Rs 25,000 per annum.

2. Employee, spouse, and dependent children (even if there is one senior citizen): The maximum available deduction is Rs 30,000 per annum.

3. Parents of the employee (no senior citizens): The maximum available deduction is Rs 25,000 per annum.

4. Parents of the employee (even if there is one senior citizen): The maximum available deduction is Rs 30,000 per annum.

Note:
1. Senior citizen means an individual resident in India who is of the age of sixty years or more at any time during the year.

2. The limit for the employee, spouse and dependent children and that for the parents of the employee are separate. For example, if an employee incurs Rs 25,000 towards medical insurance premium for himself and Rs 25,000 towards medical insurance premium for his parents, the total deduction available under Section 80D is Rs 50,000.

What about deduction available for expense incurred for preventive health checkup?
The benefit available for expenses incurred for preventive health checkup continues (maximum of Rs 5,000). This falls within the overall limit of Rs 25,000 or Rs 30,000 (as the case may be).

7. Deduction under Section 80DD – Maintenance/medical treatment of disabled dependent.

1. Ordinary disability: Rs 75,000.

2. Severe disability: Rs 125,000.

8. Deduction under Section 80DDB – Medical treatment for specified diseases.

1. Junior citizen: Rs 40,000 (Maximum deduction).

2. Senior citizen (60 years or more but less than 80 years): Rs 60,000 (Maximum deduction).

3. Very senior citizen (80 years or more): Rs 80,000 (Maximum deduction)

The government has relaxed the norm with respect to production of proof of medical treatment. From 2015-16, an employee who seeks this benefit can submit a medical certificate from a specialist who may or may not be working in a government hospital.

9. Deduction under Section 80U – Deduction in case of an employee with disability.

1. Ordinary disability: Rs 75,000.

2. Severe disability: Rs 125,000.

10. Exemption under Section 10 (14) (Rule 2BB) – Transport Allowance.

The exemption limit has been enhanced to Rs 1,600 per month. You could consider revising the salary structure of your employees to make the amount paid under transport allowance at least Rs 1,600 per month.