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Budget 2012: Revision in tax exemption limit not really beneficial

Budget 2012: Revision in tax exemption limit not really beneficial

The new tax slabs may ease your tax burden by Rs 1,030-22,660 depending on the income and the tax slab. Unfortunately, taxpayers with higher incomes will be the main beneficiary.

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Tapati Ghose
  • Apr 30, 2012,
  • Updated May 28, 2012 4:38 PM IST
Tapati Ghose, Partner, Deloitte Haskins and Sells
"I must be cruel only to be kind." When Finance Minister Pranab Mukherjee quoted Shakespeare's Hamlet before announcing the tax proposals for 2012-13, there was a general fear that he would take strong measures. The announcements that followed did not appear to be harsh on taxpayers at first. However, this cannot be said after analysing the Budget's fine print.FOR THE RICHFor 2012-13, the government has brought men and women on the same plane by raising the income tax threshold for both to Rs 2 lakh. The earlier threshold was Rs 1.8 lakh for men and Rs 1.9 lakh for women. The threshold for 30 per cent tax rate has been increased from Rs 8 lakh to Rs 10 lakh. By doing so, the finance minister is probably trying to convey that though the Direct Taxes Code, or DTC, for tax reforms could not be implemented from 1 April 2012, the wheels are in motion.
SPECIAL: Budget 2012 another opportunity lost for UPAThe new tax slabs may ease your tax burden by Rs 1,030-22,660 depending on the income and the tax slab. Unfortunately, taxpayers with higher incomes will be the main beneficiary, rather than the low and middle income groups, which are the most hit by inflation.
Gain Sum, Lose Sum: The tax slabs for 2012-13 do not differentiate between men and women
For senior citizens (60 years or above, but below 80 years) as well as very senior citizens (80 years or above), the threshold remains Rs 2.5 lakh and Rs 5 lakh, respectively.An additional deduction of up to Rs 20,000 for investments in infrastructure bonds will no longer be available. Taxpayers can, however, seek relief from an additional deduction of up to Rs 10,000 for interest earned on savings accounts with banks and post offices. The deduction will be available under a new Section 80TTA of the Income-Tax Act. This will simplify things as you will not have to take into account the small amounts earned as interest on savings accounts while calculating tax. The move will free small taxpayers with salary income up to Rs 5 lakh and interest income from savings accounts up to Rs 10,000 from the requirement of filing returns.BREATHER FOR SENIOR CITIZENSThere are a few silver linings for the aged: No advance tax payments need to be made by those who do not have income from business and profession. Hence, tax liability (other than tax deducted at source) can now be discharged by way of self-assessment tax.

A deduction of Rs 5,000 can be claimed for preventive health check-ups even for cash payments, but you must retain the bills.

Kuldip Kumar

Executive Director, Tax and Regulatory Services, PwC India

Further, recognising the need for consistency in the eligible age for senior citizens for various tax reliefs, the age limit has been reduced to a uniform 60 from 65 for Sections 80D (additional deduction for insurance premium for aged parents), 80DDB (enhanced limit for medical treatment for specified ailments) and 197A(1C) (non-deduction of tax at source on interest, dividends, etc, based on declaration of NIL total income).The Rajiv Gandhi Equity Scheme mentioned in the finance minister's speech is not covered in the Finance Bill 2012. The scheme aims at initiating more Indians into the stock market by providing a tax sop. SPECIAL: How the service tax hike is hurting you
Under the scheme, new retail investors will be eligible for income tax deduction of 50 per cent on direct equity investments up to Rs 50,000 if their annual income is below Rs 10 lakh. The scheme will have a lock-in of three years.For those who dream of starting their own business, there is some good news. One avenue of financing small and medium enterprises, or SMEs, is selling property. Rollover relief from long-term capital gains from sale of residential property will be available if the proceeds are used for buying plant and machinery for a new start-up SME in manufacturing.
COMMON TOUCHAt present, a deduction is allowed on premium for health insurance policy for self, spouse and dependent children of Rs 15,000. A further Rs 15,000 deduction is available in respect of parents (Rs 20,000 for senior citizens). This Section has been widened to include preventive health check-up for self, spouse, dependent children and parents. A limit of Rs 5,000 has been specified, within the overall limits.

Deduction of Rs 10,000 for interest from savings accounts will free a lot of taxpayers with salary income up to Rs 5 lakh from filing tax returns.

Bimal Gandhi

Chairman, Ameriprise India

While the parliamentary standing committee's report on DTC has not been considered with respect to tax slabs, its suggestion on revising the ratio of premium paid to sum assured for availing tax relief on life insurance policies under Section 80C and 80D has been acknowledged. Tax benefits will, henceforth, not be available on new life insurance policies with annual premiums of more than 10 per cent of the minimum sum assured in any year of the policy. Earlier, one could claim exemption for premiums up to 20 per cent of the sum insured.Trading in equities will become slightly less taxing as securities transaction tax on delivery-based equity transactions will be reduced from 0.125 per cent to 0.1 per cent.Businessmen and professionals will have to get their accounts audited only if their sales, turnover or gross receipts have in the previous year exceeded Rs 1 crore and Rs 25 lakh, respectively. Earlier, this was mandatory if the figures exceeded Rs 60 lakh and Rs 15 lakh, respectively, for businessmen and professionals.TAX NET WIDENSDeduction of 10 per cent tax on remuneration paid to a director which is not salary. At present, tax is deducted at source only if the director is paid a salary.

The 1 per cent tax deduction at source on real estate transactions is a good move. It will help bring more people under the tax net.

Sunil Goyal

Managing Director, Ladderup Finance

Buying and selling of immovable property will also become more taxing. The buyer will have to deduct 1 per cent tax at source if the sale amount exceeds Rs 50 lakh for a property in an urban area and Rs 20 lakh in other areas. The transaction value will be either the actual cost or the minimum valuation adopted by the state government for stamp duty.To prevent evasion of tax, property registration will be done only after the buyer furnishes the proof of tax deduction and its credit to the tax department. This will be effective from 1 October 2012.With a view to curb the flow of unaccounted money in trade of bullion and jewellery, the seller will have to collect 1 per cent tax at source for cash purchases in excess of Rs 2 lakh. This will be applicable for purchase by individuals, traders and manufacturers.BLACK MONEY
KEY HIGHLIGHTS
  • Tax deduction for investment up to Rs 20,000 in infrastructure bonds not extended.
  • Senior citizens who do not have any income from profession or business will not have to pay advance tax.
  • Interest income from savings account has been exempted from income tax if it does not exceed Rs 10,000.
  • Capital gains from sale of a house or plot will not be taxable if the proceeds are used for setting up a new small or medium enterprise in the manufacturing sector.
  • Buyer required to deduct tax when making payment for an immovable property (other than agricultural land) worth Rs 50 lakh or more in specified urban areas and Rs 20 lakh or more in other areas.
  • Taxation of unexplained money, credits, investments, expenditures at the highest rate of 30 per cent irrespective of the slab of income.
  • Cash purchase of jewellery and bullion in excess of Rs 2 lakh will be subject to 1 per cent tax collected at source.
  • For all tax provisions, individuals aged 60 years or above will be considered senior citizens.
  • Individuals who claim profit-linked deductions will come under the purview of the alternate minimum tax.
Payment of advance tax can no longer be escaped on the plea that tax is deductible at source. Under Section 80G, no deduction shall be allowed in respect of donations in excess of Rs 10,000 unless such sum is paid by any mode other than cash.Furnishing of return is being made mandatory for every resident having any asset (including shares, properties and bank accounts) outside India. This is irrespective of whether or not the resident has taxable income. As the provision comes into effect from 1 April 2012, those with assets overseas must be prepared to file a return in tax assessment year 2012-13 itself.Further, the time limit for issue of notice for re-opening of assessment has been increased from six to 16 years where income in relation to any asset located outside India chargeable to tax has escaped assessment. Corresponding amendments are proposed for wealth tax as well. These provisions, being clarificatory in nature, will have some retrospective effect.Undisclosed and unaccounted credits will be subject to tax at 30 per cent (plus surcharges and cess). Earlier, taxpayers with unexplained money and investments had to pay according to their tax slabs. A penalty ranging from 10-90 per cent is also proposed in cases of undisclosed income; the rate will depend on whether such income is admitted during a search, in the return of income after the search, or otherwise.For those seeking to claim relief under a Double Taxation Avoidance Agreement (DTAA) based on tax residency in an overseas country, more paperwork is on the cards. They will now require a tax residency certificate to claim this relief.The tax authorities seem to be moving in the right direction in tracking down income escaping the tax net.TAPATI GHOSEPartner, Deloitte Haskins & Sells

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Tapati Ghose, Partner, Deloitte Haskins and Sells
"I must be cruel only to be kind." When Finance Minister Pranab Mukherjee quoted Shakespeare's Hamlet before announcing the tax proposals for 2012-13, there was a general fear that he would take strong measures. The announcements that followed did not appear to be harsh on taxpayers at first. However, this cannot be said after analysing the Budget's fine print.FOR THE RICHFor 2012-13, the government has brought men and women on the same plane by raising the income tax threshold for both to Rs 2 lakh. The earlier threshold was Rs 1.8 lakh for men and Rs 1.9 lakh for women. The threshold for 30 per cent tax rate has been increased from Rs 8 lakh to Rs 10 lakh. By doing so, the finance minister is probably trying to convey that though the Direct Taxes Code, or DTC, for tax reforms could not be implemented from 1 April 2012, the wheels are in motion.
SPECIAL: Budget 2012 another opportunity lost for UPAThe new tax slabs may ease your tax burden by Rs 1,030-22,660 depending on the income and the tax slab. Unfortunately, taxpayers with higher incomes will be the main beneficiary, rather than the low and middle income groups, which are the most hit by inflation.
Gain Sum, Lose Sum: The tax slabs for 2012-13 do not differentiate between men and women
For senior citizens (60 years or above, but below 80 years) as well as very senior citizens (80 years or above), the threshold remains Rs 2.5 lakh and Rs 5 lakh, respectively.An additional deduction of up to Rs 20,000 for investments in infrastructure bonds will no longer be available. Taxpayers can, however, seek relief from an additional deduction of up to Rs 10,000 for interest earned on savings accounts with banks and post offices. The deduction will be available under a new Section 80TTA of the Income-Tax Act. This will simplify things as you will not have to take into account the small amounts earned as interest on savings accounts while calculating tax. The move will free small taxpayers with salary income up to Rs 5 lakh and interest income from savings accounts up to Rs 10,000 from the requirement of filing returns.BREATHER FOR SENIOR CITIZENSThere are a few silver linings for the aged: No advance tax payments need to be made by those who do not have income from business and profession. Hence, tax liability (other than tax deducted at source) can now be discharged by way of self-assessment tax.

A deduction of Rs 5,000 can be claimed for preventive health check-ups even for cash payments, but you must retain the bills.

Kuldip Kumar

Executive Director, Tax and Regulatory Services, PwC India

Further, recognising the need for consistency in the eligible age for senior citizens for various tax reliefs, the age limit has been reduced to a uniform 60 from 65 for Sections 80D (additional deduction for insurance premium for aged parents), 80DDB (enhanced limit for medical treatment for specified ailments) and 197A(1C) (non-deduction of tax at source on interest, dividends, etc, based on declaration of NIL total income).The Rajiv Gandhi Equity Scheme mentioned in the finance minister's speech is not covered in the Finance Bill 2012. The scheme aims at initiating more Indians into the stock market by providing a tax sop. SPECIAL: How the service tax hike is hurting you
Under the scheme, new retail investors will be eligible for income tax deduction of 50 per cent on direct equity investments up to Rs 50,000 if their annual income is below Rs 10 lakh. The scheme will have a lock-in of three years.For those who dream of starting their own business, there is some good news. One avenue of financing small and medium enterprises, or SMEs, is selling property. Rollover relief from long-term capital gains from sale of residential property will be available if the proceeds are used for buying plant and machinery for a new start-up SME in manufacturing.
COMMON TOUCHAt present, a deduction is allowed on premium for health insurance policy for self, spouse and dependent children of Rs 15,000. A further Rs 15,000 deduction is available in respect of parents (Rs 20,000 for senior citizens). This Section has been widened to include preventive health check-up for self, spouse, dependent children and parents. A limit of Rs 5,000 has been specified, within the overall limits.

Deduction of Rs 10,000 for interest from savings accounts will free a lot of taxpayers with salary income up to Rs 5 lakh from filing tax returns.

Bimal Gandhi

Chairman, Ameriprise India

While the parliamentary standing committee's report on DTC has not been considered with respect to tax slabs, its suggestion on revising the ratio of premium paid to sum assured for availing tax relief on life insurance policies under Section 80C and 80D has been acknowledged. Tax benefits will, henceforth, not be available on new life insurance policies with annual premiums of more than 10 per cent of the minimum sum assured in any year of the policy. Earlier, one could claim exemption for premiums up to 20 per cent of the sum insured.Trading in equities will become slightly less taxing as securities transaction tax on delivery-based equity transactions will be reduced from 0.125 per cent to 0.1 per cent.Businessmen and professionals will have to get their accounts audited only if their sales, turnover or gross receipts have in the previous year exceeded Rs 1 crore and Rs 25 lakh, respectively. Earlier, this was mandatory if the figures exceeded Rs 60 lakh and Rs 15 lakh, respectively, for businessmen and professionals.TAX NET WIDENSDeduction of 10 per cent tax on remuneration paid to a director which is not salary. At present, tax is deducted at source only if the director is paid a salary.

The 1 per cent tax deduction at source on real estate transactions is a good move. It will help bring more people under the tax net.

Sunil Goyal

Managing Director, Ladderup Finance

Buying and selling of immovable property will also become more taxing. The buyer will have to deduct 1 per cent tax at source if the sale amount exceeds Rs 50 lakh for a property in an urban area and Rs 20 lakh in other areas. The transaction value will be either the actual cost or the minimum valuation adopted by the state government for stamp duty.To prevent evasion of tax, property registration will be done only after the buyer furnishes the proof of tax deduction and its credit to the tax department. This will be effective from 1 October 2012.With a view to curb the flow of unaccounted money in trade of bullion and jewellery, the seller will have to collect 1 per cent tax at source for cash purchases in excess of Rs 2 lakh. This will be applicable for purchase by individuals, traders and manufacturers.BLACK MONEY
KEY HIGHLIGHTS
  • Tax deduction for investment up to Rs 20,000 in infrastructure bonds not extended.
  • Senior citizens who do not have any income from profession or business will not have to pay advance tax.
  • Interest income from savings account has been exempted from income tax if it does not exceed Rs 10,000.
  • Capital gains from sale of a house or plot will not be taxable if the proceeds are used for setting up a new small or medium enterprise in the manufacturing sector.
  • Buyer required to deduct tax when making payment for an immovable property (other than agricultural land) worth Rs 50 lakh or more in specified urban areas and Rs 20 lakh or more in other areas.
  • Taxation of unexplained money, credits, investments, expenditures at the highest rate of 30 per cent irrespective of the slab of income.
  • Cash purchase of jewellery and bullion in excess of Rs 2 lakh will be subject to 1 per cent tax collected at source.
  • For all tax provisions, individuals aged 60 years or above will be considered senior citizens.
  • Individuals who claim profit-linked deductions will come under the purview of the alternate minimum tax.
Payment of advance tax can no longer be escaped on the plea that tax is deductible at source. Under Section 80G, no deduction shall be allowed in respect of donations in excess of Rs 10,000 unless such sum is paid by any mode other than cash.Furnishing of return is being made mandatory for every resident having any asset (including shares, properties and bank accounts) outside India. This is irrespective of whether or not the resident has taxable income. As the provision comes into effect from 1 April 2012, those with assets overseas must be prepared to file a return in tax assessment year 2012-13 itself.Further, the time limit for issue of notice for re-opening of assessment has been increased from six to 16 years where income in relation to any asset located outside India chargeable to tax has escaped assessment. Corresponding amendments are proposed for wealth tax as well. These provisions, being clarificatory in nature, will have some retrospective effect.Undisclosed and unaccounted credits will be subject to tax at 30 per cent (plus surcharges and cess). Earlier, taxpayers with unexplained money and investments had to pay according to their tax slabs. A penalty ranging from 10-90 per cent is also proposed in cases of undisclosed income; the rate will depend on whether such income is admitted during a search, in the return of income after the search, or otherwise.For those seeking to claim relief under a Double Taxation Avoidance Agreement (DTAA) based on tax residency in an overseas country, more paperwork is on the cards. They will now require a tax residency certificate to claim this relief.The tax authorities seem to be moving in the right direction in tracking down income escaping the tax net.TAPATI GHOSEPartner, Deloitte Haskins & Sells

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