Individuals earning Rs 10 lakh or more a year will be the biggest beneficiaries of this year’s Budget. The finance minister has lifted the threshold for incidence of the peak income tax rate of 30 per cent to Rs 10 lakh from Rs 8 lakh. The move will leave around Rs 22,600 more in the hands of this class of taxpayers.
For individuals with lower taxable income, enhancement of the exemption limit will provide a breather. The exemption limit for the general category of individual taxpayers has been enhanced to Rs 2 lakh from Rs 1.8 lakh. This measure will provide tax relief up to Rs 2,000 to every taxpayer in this category.
The Budget speech brought to ground expectations that were allowed to soar by the recommendations of the Parliamentary Standing Committee that reviewed the Direct Taxes Code proposals. The committee had pegged the exemption limit at Rs 3 lakh.
Kuldip Kumar, executive director (tax & regulatory services), PwC India, says: “The raising of exemption limit from Rs 1.8 lakh to Rs 2 lakh and introduction of deduction of savings bank interest up to Rs 10,000 will benefit everyone.”
A significant move that was not expressly made but implied was on the tax-saving infrastructure bonds. Long-term infrastructure bonds, which were eligible for tax exemption of up to Rs 20,000 under section 80CCF, have been allowed to lapse. “There was no mention of these bonds in the Budget. It has lapsed,” said Suresh Sadagopan of Ladder7 Financial Services. Experts are also concerned that the sops given on the direct tax front could be taken away by the increase in service tax rates by two per cent.
Persons in the higher income bracket will now be brought under the minimum alternate tax (MAT) net. Homi Mistry, partner, Deloitte, Haskins & Sells, says: “Not everyone will be liable to pay MAT. Only if your total taxable income is above Rs 20 lakh, will you be paying MAT or Alternate Minimum Tax (AMT) at the rate of 18.5 per cent of adjusted total income. It exists in the US and Taiwan as AMT.”
Over all, Sadagopan described it as “a so-so Budget for individuals” with the biggest positive being the lack of any major negatives. The benefits on the direct tax front may to an extent be neutralised by the indirect tax proposals, with the increase in excise duty and service tax rates from 10 per cent to 12 per cent, experts say.