Consumer aid: more cash in hand

BUDGET & THE INDIVIDUAL

Personal income tax threshold is now less than that in the US.

Income tax payers will feel happier after this Budget. Presenting the Union Budget for the year 2008-09 in the Lok Sabha, Finance Minister P Chidambaram today raised the basic exemption limit from Rs 1.1 lakh to 1.5 lakh for all male assess.

Also, the limit for women assesses has been hiked from Rs 1.45 lakh to 1.80 lakh and for the senior citizens, from 1.95 lakh to 2.25 lakh. The reason: tax collections have been going up in the last few years. And the numbers speak for themselves. The tax to gross domestic product (GDP) has risen from 9.2 per cent in 2003-04 to 12.5 per cent 2007-08.

The rise in the exemption limit essentially implies that a person who was paying a tax of Rs 4,120 annually on his income of Rs 1.5 lakh will not be paying anything at all. Similarly, women assesses would save Rs 6,695 and senior citizens, would save Rs 6,180 on the income of Rs 1.8 lakh and 2.25 lakh respectively.

Though this may sound like a small relief, when one goes through the numbers, income earners up to Rs 5 lakh are likely to save between Rs 40,000 and Rs 45, 000. 
  

BOUNTY FOR THE INDIVIDUAL TAXPAYER
Income (Rs)	MALE			FEMALE			SENIOR CITIZEN
	Existing tax amount	Proposed tax amount	Reduction in tax	Existing  tax amount	Proposed   tax amount	Reduction in tax	Existing  tax amount	Proposed   taxamount	Reduction in tax
1,00,000	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil
2,00,000	14,420	5,150	9,270	10,815	2,060	8,755	1,030	Nil	Nil
3,00,000	40,170	15,450	24,720	36,565	12,360	24,205	26,780	7,725	19,055
4,00,000	71,070	36,050	35,020	67,465	32,960	34,505	57,680	28,325	29,355
5,00,000	1,01,970	56,650	45,320	98,365	53,560	44,805	88,580	48,925	39,655
7,00,000	1,63,770	1,18,450	45,320	1,60,165	1,15,360	44,805	1,50,380	1,10,725	39,655
10,00,000	2,56,470	2,11,150	45,320	2,52,865	2,08,060	44,805	2,43,080	2,03,425	39,655
15,00,000	4,52,067	4,02,215	49,852	4,48,102	3,98,816	49,286	4,37,338	3,93,718	43,621
20,00,000	6,22,017	5,72,165	49,852	6,18,052	5,68,766	49,286	6,07,288	5,63,668	43,621
25,00,000	7,91,967	7,42,115	49,852	7,88,002	7,38,716	49,286	7,77,238	7,33,618	43,621

However, the incremental saving over Rs 5 lakh income is just another Rs 5,000. For instance, for an individual earning Rs 25 lakh, the savings is Rs 49, 852, Rs 49, 286 and Rs 43,621 for male, females and senior citizens, respectively.

Interestingly, Indian taxpayers will now be better off than those in the US. Says Kaushik Mukerjee, executive director, PricewaterhouseCoopers, "The finance minister has increased the threshold for personal tax exemption by about 35 per cent, which is about $4,000. This is more than the basic threshold in the US where the ceiling is $3,400. However, we are yet to reach the levels of Australia ($5,500), UK ($11,000) or Singapore ($15,000). We were ahead of China already where the annual threshold is about $ 1400."

Though this hike is substantial in relative terms, Mukherjee feels that it may take some time to catch up with countries like Australia, UK and Singapore.

Many also expected that the education cess of 3 per cent should have also gone, but the FM did not announce any such moves. Also, the surcharge of 10 per cent on the individual income of over Rs 10 lakh stays.

Also, the much-awaited relief on banking transaction tax will now be removed from April, 2009. This tax, 0.1 per cent on transactions of Rs 25,000 on a single day was introduced in the 2005-06 Budget. This created quite a stir among the consumers, who felt that they were being tax again on the same income.

On the whole, the idea of FM seems to be to put in more money at the hands of the consumer, which would give them more spending power. Given that there are worries of a slowdown in the two-wheelers and car segment, a little more cash at-hand of the customer would help the industry.