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Proposal to hike basic tax exemption limit and likely beneficiaries

The Finance Minister in his budget speech proposed to raise basic exemption limit from Rs.1.8lacs to Rs.2lacs resulting in tax savings of Rs.2000. For the income above the basic exemption limits, new tax slabs have been announced too. Rs. 2 Lacs to Rs. 5 lacs - 10% , Rs. 5 lacs - Rs.10 Lacs - 20% and above Rs.10 lacs - 30%.

  K. Srinivas CWA

The Finance Minister in his budget speech proposed to raise basic exemption limit from Rs.1.8lacs to Rs.2lacs resulting in tax savings of Rs.2000. For the income above the basic exemption limits, new tax slabs have been announced too. Rs. 2 Lacs to Rs. 5 lacs – 10% , Rs. 5 lacs – Rs.10 Lacs – 20% and above Rs.10 lacs – 30%.

Though taxpayers across the board can now derive tax benefits due to raise in the income tax slabs, a pertinent question to be asked is: Who is the most likely to benefit from this – a person with high taxable income or a person with moderate taxable income?

New Tax slabs and Tax rates (for resident male assessees aged less than 65 years)

Taxable income Rate (in %)
Upto Rs.2 lacs Nil
Rs.2lacs – Rs.5Lacs 10%
Rs.5Lacs – Rs.10Lacs 20%
Above Rs.10lacs 30%

New Tax slabs and Tax rates (for resident male assessees aged less than 65 years) assuming a taxable income of:

a)                  Rs.12lacs per year

Taxable income Rate (in %) Tax Payable (in Rs.)
Upto Rs.2 lacs Nil 0
Rs.2lacs – Rs.5Lacs 10% 30000
Rs.5Lacs – Rs.10Lacs 20% 100000
Rs.10lacs – Rs.12lacs 30% 60000

                                          Total Tax Payable = Rs. 190000+ edu cess + SHE cess

                 Under existing tax slabs:

Taxable income Rate (in %) Tax Payable (in Rs.)
Upto Rs.1.8 lacs Nil 0
Rs.1.8lacs – Rs.5Lacs 10% 32000
Rs.5Lacs – Rs.8Lacs 20% 60000
Above Rs.8lacs 30% 120000

                                                            Total tax payable = Rs. 212000+ edu cess + SHE cess.

                        Tax benefits: Rs. 212000 – Rs.190000 = Rs. 22000.

b)                  Rs.3lacs per year

Taxable income Rate (in %) Tax Payable (in Rs.)
Upto Rs.2 lacs Nil 0
Rs.2lacs – Rs.5Lacs 10% 10000
Rs.5Lacs – Rs.10Lacs 20%
Rs.10lacs – Rs.12lacs 30%

                                          Total Tax Payable = Rs. 10000+ edu cess + SHE cess

                 Under existing tax slabs:

Taxable income Rate (in %) Tax Payable (in Rs.)
Upto Rs.1.8 lacs Nil 0
Rs.1.8lacs – Rs.5Lacs 10% 12000
Rs.5Lacs – Rs.8Lacs 20%
Above Rs.8lacs 30%

                                                            Total tax payable = Rs. 12000+ edu cess + SHE cess

                        Tax benefits: Rs. 12000 – Rs.10000 = Rs.2000

             Though the basic exemption limit has been raised to Rs. 2lacs from the existing Rs1.80 Lacs , this proposal is likely to benefit the people with higher taxable income. The common tax payer with a moderate taxable income is likely to be disappointed.With the existing high inflation and high cost of living that the common tax payer has been facing for the last 3 years, the increase in basic exemption limit just upto Rs. 2 lacs  is unlikely to cheer the common tax payer.

 

Experts believe that the basic exemption limit could have been raised atleast upto Rs. 3 lacs per year given that the cost of goods and services are only going to increase with the government’s budget proposal to hike basic excise duty and service tax from 10% to 12 %.

 K. Srinivas CWA

Mobile: 99403 75173

A 1/ 5, Cannan Apartments,

Krishna Road,New Perungalathur, Chennai – 63

Categories: Income Tax

View Comments (2)

  • IF GOVERNMENT WANTS PUBLIC MONEY TO BE USED FOR NATIONAL AND GLOBAL
    DEVELOPMENT….ON ALL FIXED DEPOSIT MORE THAN FIVE YEARS TDS SHOULD NOT BE DEDUCTED EVEN IF FORM 15 G OR 15 H GIVEN TO THE BANK OR OTHER INSTRUMENTS ON YEAR TO YEAR BASIS…FOR EXAMPLE NATIONAL SAVINGS SCHEME 6 YEARS KEEPING FOR THE NATIONAL GROOWTH OF INVESTMENT ..SHOULD BE WAIVED OFF ON TDS..

    COMMON PUBLIC IS NOT BENEFITTING OR PARTICIPATING IN THIS TYPE OF GROWTH. NO NEED TO FILE RETURN IF HE OR SHE NOT CANCELLING THE FIXED DEPOSIT IN NSC BANK OR BONDS MORE THAN 5 YEARS OR MORE ( LET GOVERNMENT CAN DECIDE) THOSE TYPE OF DEPOSIT NEED NOT REQUIRED TO SUBMIT IT RETURNS…THIS TYPE OF POLCICY NO FINANCE MINISTERS SINCE INDEPENDENCE FOR THE COUNTRY GROWTH THINKING ON THIS….. WE ARE SAYING IF ANY DEPOSIT CANCELLED ON THIS TYPE OF SPECIAL DEPOSITS DIRECTLY PUT HEAVY FINE ON PRINCIPAL AND INTEREST…..HERE GOVT BENEFITED BY THIS NOTES….PLEASE THINK IN A LONG TERM GLOBAL PERSPECTIVE. IN THIS CASE U ARE UNWANTEDLY PAYING NRI MORE INTEREST FOR WHAT PURPOSE…THIS TYPE OF SPECIAL SCHEMEN U CAN BRING FOR NRI ALSO THOSE WHO ARE INVESTING LONGTERM IN INDIA …THOSE DEPOSITS NO NEED TO FILE ITAX RETURN SO ALL NRIS WILL INVEST WITHOUT FEARING TAX APPLICATION IF THE MONEY BROUGHT IN…..FINANCE MINISTRY PLEASE SEE THIS….

    Your comment is awaiting approval.
    r wrote on 17 March, 2012, 6:03
    SPECIAL FIXED DEPOSIT /BONDS / MUTUAL FUND INVESTMENTS….THOSE TYPE OF INVESTMENTS GOVT CAN FIX THE PERIOD SAY 5 OR 7 OR 10 YEARS LIKE THAT
    THOSE TYPE OF DEPOSIT SHOULD NOT GET ANY TDS EVEN IF FORM 15 G OR 15 H SUBMITTED.
    GOVT CAN CHANNEL THIS TYPE LONG TERM INVESTMENT OF THE PUBLIC FOR INFRA AND OTHER INDUSTRIAL OR NATIONAL GROWTH ON VARIOUS SECTORS. SIMPLY PAYING INTEREST RATES IS NO USE… BEING AN INDIVIDUAL I WANT MY INVESTMENT SHOULD CARRY INTEREST PLUS I WANT MY FUND TO BE USED BY THE COUNTRY FOR GROWTH AND AS A MATTER OF FACT I DONT WANT MY FUND TO BE DEDUCTED ON TDS …AFTER MATURITY….WHY NO GOVT FUNCTIONED SINCE INDEPENDENCE ON BUDGET NOTES BRINGING THIS TYPE OF THINGS…SO ALL PEOPLE WILL PARTICIPATE IN THIS TYPE OF LONG TERM INVESTMENT….IF CANCELLED AS TOLD EARLIER PUT HEAVY FINE ON PRINCIPAL AND INTEREST SAY DEDUCT 20% ON PRINCIPAL IF HE OR SHE CANCELLING THE 5 YEARS OR GOVT FIX THE PERIOD FOR THOSE TYPE OF SPECIAL DEPOSIT….FINCANCE MINISTRY …PLEASE LOOK ON ,,,,,,,,

  • Even though the basic taxable limit has been raised from 1.8 lac to 2 lac ,investment on infrastructure bond Rs.20000/ has been taken back. one plus one is two .Cut and paste work done by the Finance Minister. Nothing new 

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