Budget Talk - Tax Relief Bonanza

With the Union Budget coming up in July, the Indian salaried class may be up for an exciting gift from the newly formed NDA government – a raise in the Income Tax exemption limit. Currently, no income tax is levied on an annual income up to INR 2 lakh. The slab is likely to be enhanced and no tax to be charged on an annual income up to INR 5 lakh. Indications are that this exemption shall be effected in a move by the NaMo led government to bring a much–needed reprieve to the middle class income community which has been battling rising costs and a skyrocketing inflation over the past two years. Current income tax slabs in practice are as follows –

Category	Income	Tax

General Tax Payers	0 to 2,00,000	No Tax
	2,00,001 to 5,00,000	10%
	5,00,001 to 10,00,000	20%
	Above 10,00,000	30%

Senior Citizens (Age - 60 years or above but less than 80 years)	0 to 2,50,000	No Tax
	2,50,001 to 5,00,000	10%
	5,00,001 to 10,00,000	20%
	Above 10,00,000	30%

Very Senior Citizens (Age - above 80 years)	0 to 5,00,000	No Tax
	5,00,001 to 10,00,000	20%
	Above 10,00,000	30%
* Rebate of INR 2,000 on tax for income less than INR 5 lakh
* 10% tax surcharge on income above INR 1 crore

In the FY 2013-14 budget, UPA finance minister P Chidambaram introduced an added burden on “relatively prosperous" persons. An additional surcharge of 10% was levied on individuals with a taxable income exceeding INR 1 crore. While the tax slab for this bracket currently remains 30%, the addition of the surcharge makes it an effective tax of 33%. In the budget for FY 2014-15, the Union finance minister Arun Jaitley may take this further ahead by levying a higher tax burden on the super-rich class of the country, comprising those who earn a taxable income of INR 10 crore or more. Mr. Jaitley is supposedly mulling over a hike of the surcharge to about 35%. The BJP-led government’s move to restructure the tax slabs and to rationalize India’s tax regime, if implemented, will be a historic but very welcome reform. The income tax exemption limit was last hiked in the Union Budged presented in March 2012. Our current President Pranab Mukherjee was then the Finance Minister in the UPA government and had presented the budget. The exemption limit was at the time hiked from INR 1.8 lakh to INR 2 lakh. The mood of the middle-income class investors is predictably buoyant. In addition to this popular news reports have been suggesting that Mr. Jaitley is also likely to announce a raise the exemption limit for savings under Section 80C of the Income Tax Act. Section 80C allows individuals to avail of deductions on their taxable income by investing in one or more of the available tax-saving instruments such as the PPF (public provident fund), ELSS (equity-linked saving-scheme), ULIPs (unit-linked insurance plans) mutual funds etc. Currently, the maximum deduction available under Sections 80C, 80CCC, and 80CCD together is INR 1 lakh. This limit may be pushed up to INR 1.5 lakh, increasing the scope for savings. The Union Budget is also likely to bring a smile to prospective home buyers in India. It is likely, say news reports, that the tax exemption provided on interest paid for a home loan will also be raised. The current about INR 1.5 lakh limit may go up to INR 2 lakh. While all the tax relief news reports are certainly making the people jubilant, balancing the fiscal situation may become a challenge for the finance minister. In such a scenario, the monthly hike of 50 paisa a liter on diesel is likely to go on. Economy watchers, tax payers, and corporate honchos alike are looking forward, expectantly, to the budget next month, in anticipation of the measures that the government is likely to take to augment the exchequer. While a restructuring of the tax slabs is certain to increase the amount of disposable income with the people thereby giving both savings and consumption a much needed boost, will it also cause a strain that the budget can ill afford? Watch out for Mr. Jaitley in the weeks to come! Related Information: Swachh Bharat Cess on Service Tax Corporate Tax in India Indo-US Tax Information Exchange Agreement Expectations from Budget 2014 - 15 Swachh Bharat Cess on Service Tax Corporate Tax in India Indo-US Tax Information Exchange Agreement What is GST: How will it change India Comparison of Goods and Services Tax Bill under UPA II and NDA New tax to reduce beverage consumption in India Tax filing for NRIs New GST regime and its future impact on telecom industry in India

Budget Talk - Tax Relief Bonanza

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