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Bhagwat, who has a five-year-old son and a house to manage, wants to know it would affect her monthly expenses.
She knows a change in income tax rates would directly affect her expenditure.
But what about other taxes? How would a change in service tax or excise duty affect her? Should she worry about these? She should.
Changes in indirect taxes can have a huge impact on monthly budgets, as these would hit the prices of essential commodities and services.
A look at various sections of the Budget relevant for Bhagwat:
Part A
Part A of the Budget speech largely deals with the broad economy. But it might include reforms such an increase in the investment limit in the Rajiv Gandhi Equity Savings Scheme (RGESS), announced last year. The scheme had provided an avenue to individuals to invest in equities and save tax. The investment limit in RGESS might be increased from Rs 50,000 to Rs 60,000, said Madan Sabnavis, chief economist, CARE Ratings. He added it was also possible the government might re-launch tax-saving infrastructure bonds, discontinued last year.
Part B
This part is more relevant for individual taxpayers, as it deals with direct and indirect taxes.
Direct taxes
Any change in income tax slabs would impact individual taxpayers. It is expected the slabs might not be changed substantially this year, as these are already close to the levels suggested by the Direct Taxes Code. Currently, there is no tax on annual income of up to Rs 2 lakh. Income more than Rs 2 lakh and up to Rs 5 lakh is taxed at 10 per cent; for income more than Rs 5 lakh and up to Rs 10 lakh, it is 20 per cent. Annual income of more than Rs 10 lakh is taxed at 30 per cent. Sabnavis says considering the high inflation, it is possible the basic exemption limit might be increased marginally — from Rs 2 lakh to Rs 2.2 lakh.
Various instruments in which individual taxpayers can invest and save tax are also important. These include Public Provident Fund, premium for life or health insurance and repayment of housing loans, and others. Any change in the amount eligible for deduction from taxable income for investments made, allowed under Section 80C, would impact individual taxpayers’ net disposable incomes. If more instruments are brought under the 80C list, this would provide more opportunities to invest and save tax. While the mutual fund (MF) sector has been urging MF investments be included under Section 80C, banks have sought the tenure of tax-saving fixed deposits be reduced from five to three years.
Indirect taxes
Indirect taxes have an impact on your monthly budget, as any rise or fall in these hits prices of goods.
This year, the government could announce a few measures relating to the Goods and Services Tax (GST). As the government moves closer to implementing GST, it remains to be seen whether it changes indirect tax rates. Any increase in service tax or excise duty would raise prices of essential goods and have an impact on the household budget.
“Under GST, 16 per cent tax on services and 20 per cent on goods is proposed. So, it is likely in this year’s Budget, if the government is under pressure to raise revenue, service tax might be increased from 12 per cent, while the excise tax on goods might remain the same,” said Sachin Menon, partner, and national head-indirect taxes, KPMG.
Service tax: In Budget 2012-13, the government had announced a negative list of services that were exempt from service tax, effective July 1, 2012. If service tax is raised, you would have to pay more for a range of services, including online ticketing, couriering letters, tuitions, restaurant bills and visits to the beauty parlour.
Excise duty: This is an indirect tax levied on goods manufactured in India. Any change in excise duty would result in a change in the final price of goods.
This year, excise duty is likely to remain unchanged.
Customs duty: Customs duty is levied on imported goods. So, if this is increased, petrol and diesel prices could rise. Any increase in fuel prices would lead to a rise in prices of other essential commodities, too. It would also raise prices of gold and mobile phones, among others.
