Rise in income slabs, hike in 80C limit will help reduce impact of high inflation.
Finance Minister Pranab Mukherjee took the first step towards implementation of the Direct Taxes Code (DTC) on Friday. While retaining the basic exemption limits for all income levels (as in the DTC), he increased the other slabs.
For instance, while the basic exemption limit for individuals has been retained at Rs 1.6 lakh, the 10 per cent rate will now be applicable for the Rs 1.6 lakh-Rs 5 lakh bracket. Earlier, the 10 per cent rate was applicable for income of Rs 1.6-Rs 3 lakh. The hike in the slab means that the taxpayer is going to save Rs 20,600 for incomes up to Rs 5 lakh. The numbers are the same for women and senior citizens with the same income level (see table).
Further, he has also increased the limit for the next income slab — that is, the 20 per cent tax rate will be applicable for incomes of Rs 5 lakh-Rs 8 lakh instead of Rs 3 lakh-Rs 5 lakh. And the highest rate of 30 per cent will be applicable on incomes of over Rs 8 lakh (earlier Rs 5 lakh).
The maximum benefit that will come because of the increase in slabs would be Rs 51,500. “With the consumer inflation index rising at 14.97 per cent (December-end), this move will help reduce some of the burden by leaving more cash at the individual’s hands,” said a financial planner.
In addition, the FM has also increased the limit of investments under Section 80C by Rs 20,000 — from Rs 1 lakh to Rs 1.2 lakh. However, the benefits will only be given to people who invest in
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infrastructure bonds. A separate Section 80CCF has been introduced under which this benefit will come to the investor.
For the taxpayer in the higher income tax bracket, if one adds the tax benefit of Rs 51,500 with the 80CCF benefit (Rs 6,180), the total reduction in the tax burden would be Rs 57,680.
Kuldeep Kumar, Associate Director, Price WaterHouse Coopers, said, “Individuals in the lower tax bracket have not got any benefit. They will be affected by the inflation and rising petroleum prices. Changes of slabs will only benefit person earning above Rs 3 lakh.”
However, most are pleased that there were no changes in taxation of capital gains. “There was a genuine fear that the FM would withdraw the long-term capital gains tax on equities and mutual funds, as proposed by the DTC. However, given that there is an uncertainty in the market, it is a good decision to defer it till DTC is implemented,” said tax expert Kanu Doshi.