Extra bucks in your pocket Jul 10, 2009

Extra bucks in your pocket

July 10, 2009

Weekly Facts
	Close	Change	%Change
BSE Sensex	13,757.5	901.0	6.1%
Re/US$	48.7	0.8	1.6%
Gold Rs/10g	14,510.0	20.0	0.1%
Crude ($/barrel)	60.8	6.2	9.3%
FD Rates (1-Yr)	5.75% - 7.25%

Weekly change as onJuly 09, 2009

Extra bucks in your pocket - Basic exemption limit for Income Tax increased

Impact

Showering his benevolence on the tax payers, the Finance Minister, for the third time in a row, increased the basic exemption limit for Income Tax. Albeit the increase is marginal, it has been welcomed by all. For millions of working people reeling under rising cost of living, salary freezes or cuts, this will certainly prove to be palliative. The below table depicts the exemption limits for the 3 categories of tax payers.

Exemption Limit - Pre-budget and post-budget

Categories - Tax payers	Income Tax Exemption limit
Categories - Tax payers	Pre-budget	Post Budget
Individuals/HUF	150,000	160,000
Women	180,000	190,000
Senior Citizens	225,000	240,000

Now the question is - How much additional bucks you will have in your pocket? The table below answers the same.

Extra Rs 1,030 in your pocket

2008-09
Taxable Income (Rs)		500,000
Upto Rs 150,000	Nil	-
Rs 150,001 to Rs 300,000	10%	15,000
Rs 300,001 to Rs 500,000	20%	40,000
Rs 500,001 & above	30%	0
Tax payable		55,000
Education Cess	3%	1650
Total Tax (Rs)		56,650

2009-10
Taxable Income (Rs)		500,000
Upto Rs 160,000	Nil	-
Rs 160,001 to Rs 300,000	10%	14,000
Rs 300,001 to Rs 500,000	20%	40,000
Rs 500,001 & above	30%	0
Tax payable		54,000
Education Cess	3%	1620
Total Tax (Rs)		55,620

Let's take the case of an individual whose net taxable income is Rs 500,000. As per the current provisions his income tax liability will be Rs 56,650. After the increase in basic exemption limit, his tax liability will reduce to Rs 55,620, i.e. a saving of Rs 1,030.

So now he will have an additional Rs 1,030 to save, spend or even better - TO INVEST

Surcharge abolished...finally!

Impact

Finally, a long standing demand has been met - Surcharge has been abolished in the Union Budget 2009-10. Earlier, a surcharge of 10% was levied on the tax payable for income in excess of Rs 10 lakhs. Tax on tax, in our view is a sign of poor fiscal management. Besides, by its very nature, Surcharge is temporary and meant for a special purpose. Hence, for long, there has been a demand to do away with the surcharge.

Let us see how the tax payer will benefit from this.

Surcharge abolished - See the difference

2008-09
Taxable Income (Rs)		1,000,001
Upto Rs 150,000	Nil	-
Rs 150,001 to Rs 300,000	10%	15,000
Rs 300,001 to Rs 500,000	20%	40,000
Rs 500,001 & above	30%	150000.3
Tax payable before surcharge		205,000
Surcharge	10%	20,500
Tax payable after surcharge		225,500
Education cess	3%	6,765
Total Tax Payable (Rs)		232,265

2009-10
Taxable Income (Rs)		1,000,001
Upto Rs 160,000	Nil	-
Rs 160,001 to Rs 300,000	10%	14,000
Rs 300,001 to Rs 500,000	20%	40,000
Rs 500,001 & above	30%	150000.3
Tax payable before surcharge		204,000
Surcharge	0%	0
Tax payable after surcharge		204,000
Education cess	3%	6,120
Total Tax Payable (Rs)		210,120

Until last year, if an individual earned even a rupee extra over and above Rs 1,000,000, he would have to shell out Rs 20,500 as surcharge alone; not to mention the education cess, which used to pinch even further. Given the Surcharge has been finally done away with in this budget - it will translate into a savings of at least Rs 22,145. This is indeed a considerable amount and can be put to good effect by the individuals.

SARAL-2 - To make tax filing saral

Impact

The Finance Minister has taken the first step towards simplifying the tax laws. To start with, he proposes to make the income tax return form more simple and user-friendly. This will mark the introduction of SARAL - 2 forms.

The re-introduction of SARAL forms will help in removing the confusion that tax payers face at the time of filing the returns. This will make filing of returns simpler, particularly for the salaried class.

Scope of education loans extended

Impact

This is a huge morale booster for students who want to pursue higher studies, but are not able to so because of lack of financial support. Currently, Section 80E provides for a deduction in respect of interest paid on loan taken for the purpose of pursuing full-time graduate or post-graduate studies in specified fields. But in this year's budget, the scope of this deduction has been increased. Going forward, it will cover all fields of studies, including the vocational studies, pursued after passing the senior secondary examination or any equivalent exam.

Further, to enable students from economically weaker sections to access higher education, the government has proposed to introduce a scheme to provide them full interest subsidy during the moratorium period. It will cover loans, taken by such students, from scheduled banks to pursue any of the approved courses of study, in technical or professional streams, from recognized institutions in India.

This is a step towards promoting higher education across all sections of the society. Hence it's a welcome move from the government. To a large extent it will ensure that students are not deprived of higher education for want of funds.

Basic exemption limit for Wealth Tax increased

Impact

There is good news for High Networth Individuals (HNIs). The basic exemption limit for wealth tax has been increased from Rs 15 lakhs to Rs 30 lakhs - a 100% rise. This tax law will apply while valuing the net wealth of individuals as on 31st March, 2010. In India, all non-productive assets such as jewellery, bullion, motorcars, aircraft, urban land constitute are subjected to wealth tax; whereas, productive assets like shares, debentures, bank deposits and investments in mutual funds are exempt from wealth tax.

The increase in basic exemption limit of wealth tax will further add to the networth of HNIs..

Fringe Benefit Tax abolished - Additional burden on employees

Impact

India Inc did not get what they wanted the most - reduction of corporate tax. However, the FM has not completely disappointed the corporate world. The much disliked Fringe Benefit Tax (FBT) has been abolished.

It may be recalled that the FBT was paid by the employer on the fringe benefits provided to the employees. Though it is true that a part of it was passed on to the employees, the effective FBT tax rate in most cases was 6.8%. With the abolition of FBT, employers will no longer pay any tax on fringe benefits. Instead, the items of fringe benefits will be included in the employees' income as perquisites and subject to marginal rate of tax. So instead of having to bear 6.8%, the employee will now have to pay the marginal rate of tax.

While the India Inc smiles, the beneficiaries of fringe benefits have to deal with increased tax burden.

IN THIS ISSUE