Background:- The Finance Minister of India presented the Union Budget (“the Budget”) before Parliament this morning. The budget proposals will become law once Presidential assent is given after Parliamentary approval. Pursuant to the assent, the provisions will apply to the India tax year 2011-2012 (1 April 2011 to 31 March 2012), unless otherwise stated.

Marginal hike in threshold limit for taxation

The Finance Minister has proposed to raise the basic exemption limit for individuals from Rs.160,000 to Rs.180,000. The other slabs and rates are left untouched. Also, the basic exemption limit for resident women will continue at the present level of Rs.1 90,000.

A comparative table on the tax rates and slabs for 2010-11 and the proposed rates is provided hereunder-

Tax Rate Current slabs (Rs.) Proposed slabs as per Finance Bill 2011 (Rs.) Proposed

benefit (Rs.)

Nil Up to 160,000 Up to 180,000 2,000
10% 160,001 – 500,000 180,001 – 500,000 Nil
20% 500,001 – 800,000 500,001 – 800,000 Nil
30% 800,001 and above 800,001 and above Nil

The threshold limit for senior citizens has been increased by Rs.1 0,000 from Rs.240,000 to Rs.250,000.

Age limit for senior citizens lowered

At present, resident individuals who are 65 years or more are classified as senior citizens and are eligible for higher basic exemption limit. This age limit is proposed to be lowered to 60 years. Besides, another category of senior citizens is proposed to be introduced. Individuals who are 80 years or more will be categorized as “very senior citizens” and have a basic threshold limit of Rs.500,000. This category of tax payers will not have a 10% tax slab though the other slabs and tax rates will be in line with individual tax payers.

No tax returns

•           Proposal to notify a category of small tax payers who will be exempt from tax filing requirements from June 2011

•           Targeted at salaried individuals with no other income, pursuant to tax on salary being discharged through tax deduction at source

•           Employer to report salary, tax deduction and remittance electronically

Benefits for investment in infrastructure

•           Investment in long-term infrastructure bonds is allowed as a deduction from the taxable income up to Rs. 20,000. It is proposed to extend the availability of this deduction for one more year.

•           Interest received by a non-resident from notified infrastructure debt fund to be taxable at 5%

Removal of deduction for employer contribution to new pension system

At present, employer contribution to the new pension system is taxable as salary. Such contributions up to 10% of salary, qualify for deduction from total income subject to an overall cap of Rs.100,000. As a measure of rationalization, the budget proposes to remove employer contributions from the overall ceiling limit of Rs.1 00,000.

Other proposals

•           New simplified return form “sugam” to be introduced for small tax payers covered by presumptive taxation

•           Central Processing Centers to be established in Pune and Manesar and be operational by May 2011

•           Web based facility enabling direct interface of tax payers with the Income tax department for resolution of refunds

•           Foreign investors permitted to subscribe to equity schemes of mutual funds registered with Securities and Exchange Board of India [SEBI]

•           Time limit for a provident fund to obtain exemption from Employees Provident Fund Organization extended till 31 March, 2012.

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September 2021