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An additional tax savings of Rs. 2,000 for you!!

Feb 28, 2011

The Honorable Finance Minister Mr. Pranab Mukherjee continued his taxpayer friendly approach to lay in the foundation to launch the Direct Taxes Code from April 1, 2012. Last year, he provided relief to individual taxpayers by broadening the tax slabs. But this year, taking into account the fact that we are a year away from the date of implementation of the DTC, he didn't tweak much on the direct tax front, but indeed made an attempt to move closer to it.

He displayed the Government's populist emotions and instilled confidence in the common man by raising the exemption limit for individuals (in the general category) from Rs. 160,000 to Rs. 180,000. Thus now individuals (in the general category) would enjoy a uniform tax relief of Rs. 2,000.

Income-tax rates in Budget 2011
Taxable Income Tax Rate
Upto Rs 180,000 Nil
Rs 180,001 to Rs 500,000 10%
Rs 500,001 to Rs 800,000 20%
Rs 800,001 & above 30%


So, say if you are a male individual having a net taxable income of Rs. 10,00,000; and with the base exemption limit increased to Rs. 1.80 lakh, your income tax liability will be Rs. 1,56,560 - a tax saving of Rs. 2,060 (please refer table below).

2010-11
Taxable Income   10,00,000
Upto Rs.160,000 Nil -
Rs.160,001 to Rs.500,000 10% 34,000
Rs.500,001 to Rs.800,000 20% 60,000
Rs.800,001 & above 30% 60,000
Tax payable   154,000
Education Cess 3% 4,620
Total Tax (Rs.)   158,620
2011-12
Taxable Income   10,00,000
Upto Rs.180,000 Nil -
Rs.160,001 to Rs.500,000 10% 32,000
Rs.500,001 to Rs.800,000 20% 60,000
Rs.800,001 & above 30% 60,000
Tax payable nbsp; 152,000
Education Cess 3% 4,560
Total Tax (Rs.)   156,560

In our opinion this measure would help in smooth transition to the DTC wherein the basic exemption limit has been proposed to Rs. 200,000 (In the DTC there are no categories like general or women).

A special attention has been paid to the senior citizens this time, as the base exemption limit for them has been raised to Rs. 250,000 (from Rs. 240,000 earlier), thus being in line as the one proposed in DTC. Also, the most debatable issue (pending for a long time) of the qualifying age for a senior citizen under the Income Tax Act, 1961 has been addressed to in this year's budget. The FM has reduced the qualifying age for a senior citizen to 60 years from 65 years earlier.

Walking an extra mile for the senior citizens, the FM has introduced another category - "Very Senior Citizen" (age 80 years and above), and has set the base exemption limit of Rs. 500,000.

Overall the Budget 2011-12 spelt out by the Finance Minister reflected populist sentiments of the Government and moved a step closer to DTC, at least with respect to the base exemption limit. However, the expectations on the increase in section 80C (of the Income Tax Act, 1961) limit was completely turned a deaf ear, as it remains unchanged at Rs. 100,000. But we think that given the political clout under which the UPA Government was caught, and the limited scope available on the direct taxes front (due to the roll out of the DTC next fiscal) the FM has brought a smile (if not a broad one!) on the common man's face.

This article has been sourced from PersonalFN has been providing independent research since 1999 on mutual funds, insurance, fixed income instruments and gold. It also provides research based advice on investments and financial planning to individual clients. To know about our financial planning services, simply write to info@personalfn.com.

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