Middle class to gain from tax reforms

In a tax reform proposal that could give a major benefit to the middle and upper middle income groups, finance minister P Chidambaram today changed the tax brackets under which income upto Rs 1 lakh has been
exempted from levy and the surcharge of 10% has been removed for income upto Rs 10 lakh.

While withdrawing the standard deductions under the prevailing system, he announced that consolidated saving of upto Rs 1 lakh would be deducted from the income before computation of taxes for which he changed the groupings.

As per the proposals announced in the Union Budget 2005-06, there would be no tax for income upto Rs 1 lakh, while 10% tax would be levied on income from over Rs 1 lakh to Rs 1.5 lakh, 20% on income over Rs 1.5 lakh to Rs 2.5 lakh and income above Rs 2.5 lakh would attract
a tax of 30%.

In addition to this, the finance minister announced that for women, income upto Rs 1.25 lakh would not be taxed and in the case of senior citizens above 65 years of age this limit has been enhanced to Rs 1.5 lakh.

All existing savings/investment schemes under section 88 have been replaced by the newly introduced section 80c.