|“In addition to the increase in the basic threshold limit, the Finance Minister has made changes in the slabs. This will definitely increase the take-home salary of an individual”|
India growth story: The India growth story was the talking point in the Finance Minister’s speech. The estimated growth rate for 2007-08 has been pegged at 8.7 per cent and the drivers of growth continue to be “services” and “manufacturing”. As in the previous Budgets, the primary focus of the Finance Minister was on agriculture, health and education sector.
The education sector and the health sector got an increased funds allocation of 20 per cent and 15 per cent, respectively in this Budget. Being the last Budget before the elections, there were many popular moves made by the FM.
One among them was the introduction of the Debt Waiver and Debt Relief Scheme for small and marginal farmers. The government is proposing to give a relief of Rs 60,000 crore to farmers through this scheme.
Increase in the threshold limit: The Finance Minister announced the increase in the threshold limit for all assessees from Rs 1,10,000 to Rs 1,50,000, thus giving a minimum relief of Rs 40,000 to every assessee. In the case of a woman taxpayer, this limit has been increased to Rs 1,80,000 from Rs 1,45,000. In the case of senior citizens, this limit has been increased to Rs 2,25,000 from Rs 1,95,000.
Increase in the slab rate: In addition to the increase in the basic threshold limit, the Finance Minister has made changes in the slabs. The proposed slab rates are:
This change will definitely increase the take-home salary of an individual. In the case of an individual who has a taxable income of Rs 5,00,000 (after considering the deduction available under Section 80C) the total tax liability now will be Rs 56,650 (including education cess of 3 per cent). If we take the pre-Budget tax slabs, the tax liability would be Rs 1,01,970. The savings to an individual is a whooping Rs 45,320. This is definitely a reason to celebrate.
Enlargement of the scope of eligible tax saving instruments: An individual is allowed a deduction up to Rs 1,00,000 on expenditure incurred/investments made on certain tax saving instruments under Section 80C of the Income Tax Act. The Finance Minister has introduced two new tax saving instruments that an individual could consider investing in the future.
These are: Five-year time deposit in an account with the post office and, deposit in an account under the Senior Citizens Savings Scheme.
Increase in the tax rate on shortterm capital gains: Currently, shortterm capital gains are taxed at 10 per cent. As per the proposed amendments, short-term capital gains would attract a tax of 15 per cent. While making this announcement, the Finance Minister stated that the dividends distributed attracted a tax of 15 per cent whereas the short-term capital gains is taxed only at 10 per cent. Therefore, the move to increase the tax rate on short-term capital gains is to bring about parity in the tax rates between the two sources of income. Further, the Finance Minister also stated that this move will encourage the investors to stay invested for a longer term. This may possibly have an adverse impact on the sentiments of short-term investors in the market.
Rationalisation in the provisions of Fringe Benefit Tax (FBT): With a view to rationalise the provisions of the FBT, certain amendments have been proposed by the Finance Minister in his Budget speech. Expenditure incurred by the company on the following items is proposed to be excluded from the ambit of FBT:
In addition to the above, there are few other changes proposed by the Finance Minister that would be worth noticing. These are:
The Finance Minister has clarified two of the tax issues related to this scheme. He has stated that the mortgage of property will not give rise to any capital gains in the hands of the owner. The income received from the bank will also not be taxable in the hands of the owner.
This is a welcome move and will help senior citizens to augment money for their living. On the whole, it has been a populist and a non-controversial Budget. Everyone has some positives to look for in this Budget. The individual taxpayer will be happiest of the lot as he would have more money at his disposal.
Amitabh Singh Partner & Leader Global Mobility & Employment Taxes, Ernst & Young