“I MUST BE CRUEL ONLY TO BE KIND”

Impact of budget on an individual taxpayer 

Honourable Finance Minister quoted Shakespeare's immortal words “I must be cruel only to be kind” before beginning his speech on tax proposals.  However for an individual, the budget seems to be a mix of kind and cruel treatment.  Kind enough to tweak the tax slabs favorably and providing additional tax deduction avenues in the form of interest income from savings account deposit and preventive medical check-up and cruel enough to take the entire benefit by way of increase in service tax and excise duty rates. 

THE KIND TREATMENT

The largest benefit given to individual tax payers in the budget is the favourable revision of tax slabs.  The exemption limit has been increased from Rs. 1,80,000 to Rs. 2,00,000 for all individuals (males and females aged less than 60 years).   Taxable income more than Rs. 8,00,000 and less than Rs. 10,00,000 which currently is taxed at 30% shall be taxed at 20% after the budget announcement.  This is a clear benefit of Rs. 20,000 for individuals earning more than Rs. 8,00,000.  The revised tax slabs now are - 10% tax rate for taxable income greater than Rs. 2,00,000 to Rs. 5,00,000; 20% tax rate for taxable income greater than Rs. 5,00,000 to Rs. 10,000,000 and 30% tax rate for taxable income greater than Rs. 10,000,000.

The deductions available for individuals have also increased by making interest income from saving account deposits up to Rs. 10,000 eligible for deduction from taxable income.  In addition, the finance minister has introduced one more avenue for tax deduction – Rajiv Gandhi Equity Scheme (RGES).  Though the details of the scheme are not cleared, investment in equity up to Rs. 50,000 shall be eligible for 50% deduction for individuals earning less than Rs. 10 lakhs.  However, such investment shall have locked in of 3 years.

Further,  expenditure incurred for preventive medical check-up for self, spouse, dependent children or parents up to Rs. 5,000 shall be eligible to be included under overall deduction of Rs. 15,000 under Section 80D.

There are further smaller relief like reduction in the securities transaction tax on delivery based transactions of equity securities from 0.125% to 0.1% of the transaction value and increase in threshold from Rs. 2,500 to Rs. 5,000 for deducting tax on interest from debentures.  Further both listed and non-listed debentures get covered now under the above criteria.

Last year, budget incorporated a provision that the life insurance premium, in order to get benefit under Section 80C, should not be more than 20% of the actual capital sum assured.  Now the budget has proposed that the premium should not be more than 10% of the actual capital sum assured.  This is good for the customers, since this shall result in enhanced insurance coverage for the same amount of premium.  Further the budget also specifies in detail how the capital sum assured shall be calculated so that insurance company do not circumvent this provision by varying the sum assured from year to year. 

THE CRUEL TREATMENT

The cruelest shock in the budget for individuals is the increase in service tax rate from 10% to 12%.  There has also been hike in excise duty rates and this along with service tax rate increase almost negate the benefit of tax savings on account of slab revision.  This shall maintain the inflationary pressure on the prices and shall ensure that interest rates of loan remain high for substantial part of the year.

Further w.e.f October 2012, sale of residential property for transaction value more than Rs. 50 lakhs in specified urban agglomeration or Rs. 20 lakhs in any other area shall attract tax deduction at source of 1% of the transaction value irrespectively whether the transfer is profitable or not.  Individuals cannot evade this, since it has been made mandatory to provide proof of tax deduction while registering the transfer.

Cash purchase of bullion and jewellery for amount more than Rs. 2 lakhs shall lead to tax collection of 1% of the value by the seller.

In case, one has any asset located outside India (financial or otherwise), he has to compulsorily file return of income in India irrespective of whether he has taxable income or not. 

BEING SIXTY GETS MORE SWEETER

After reducing the senior citizen age limit from 65 years to 60 years last year, the fascination of Mr. Mukherjee for senior citizen continues and he has exempted them from paying advance tax in case they do not earn any income from business and profession.  Further the age limits in Section 80D (Health Insurance Premium) and Section 80DDB (treatment of specified ailment) and for no tax deduction certificate has been rationalized to 60 years from 65 years at present. 

Thus it can be seen that the budget is a mixed bag of kind and cruel treatment for an individual taxpayer. 

Modified version of the article to appear in DNA Newspaper dated 17th March 2012