Financial News. Simplified
Special Edition

This time of the financial year is rather crucial for all classes of people - be it the aam aadmi or even politicians for the matter. While the aam aadmi looks for tax sops, the political leaders look for a blend of fiscal prudence, reforms, policy changes and some populist measures as well.

Although it is going to be a tight rope for the Government in power to manage fiscal consolidation and stride investments, many individuals are eager to know whether in what form tax sops would be extended to them. The present appraisal season for instance, is elevating the curiosity levels of salaried individuals, since along with an increment their expectations of an increase in exemption limits is also on a high.

And indeed all those who are thinking on those lines, can expect some good news. Let's find out how...

The Parliamentary standing committee on finance (which is headed by former Finance Minister, Mr Yashwant Sinha) has recommended an increase in base exemption limit to Rs 3 lakh (from the present Rs 1.8 lakh), but has suggested that tax rates be kept unchanged as at present and be indexed to inflation. Thus if this proposal goes through, all individuals who earn a taxable income of over Rs 20 lakh, will be liable to pay a higher tax rate of (i.e.30%).

Moreover in order to encourage higher rate of savings and investment, the panel has also suggested that the deduction limit be enhanced to Rs 1.5 lakh (from Rs 1 lakh) along with the exemption limit for life and health insurance, and education, be doubled to Rs 1 lakh. Also tilting the focus on education which is essential to mould the future of India, the panel has also recommended a separate deduction of Rs 50,000 be permitted for higher education; thereby increasing the total amount available for deduction to Rs 3 lakh. Similarly, in order to facilitate sufficient funding for infrastructure the panel has recommended that the present maximum available deduction of Rs 20,000 be retained for investments in long-term infrastructure bonds.

Impact of such an initiative on the Aam Aadmi...
Taking into consideration the above proposals of the Parliamentary Standing Committee, an individual earning an annual income of Rs 6.2 lakh would not be liable to pay any tax. The base exemption limit (as proposed at Rs 3 lakh) along with deduction limit for savings of Rs 3.2 lakh makes this proposition possible. Thus, considering all this holistically, an individual will be left with more disposable income than before if the proposals put forth by the Parliamentary Standing Committee are accepted in the Budget 2012 (scheduled on March 16, 2012).

 

Our view:

We believe that the proposals put forth by the Parliamentary standing committee on finance will definitely be a sweetener for the common man, and increase his disposable income as tax slabs would be indexed to inflation as well. This in turn will encourage savings, investments and consumption which in turn would do well for the economic growth of our country and put financial house of the parliament in place.

 

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Comments

elch@prima.de Mar 24, 2012 I would open an account with an investment management firm. I am opening a ROTH IRA account with T. Rowe Price. The advantage of having a roth IRA over a normal mutual fund is that it is not taxed every year and you can still withdraw from the fund if you have an emergency and it is a retirement account set up for you. T. rowe has many no load mutual funds available. Many of their mutual funds are rated 4 or 5 stars and have large growth up to 20% within 10 years. You can check out their website and answer their screening questions to see what options are best for you, more than likely you will be directed to growth mutual funds because of your age. There are other companies like Fidelity or Vanguard you could look into as well.

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