Individuals' Tax Burden Good or Bad: Budget 2012-13 Analysis

Is Budget 2012-13 a Blessing or Curse for Individual Tax Payers?

As informed in earlier post of Personal Income Tax Slab:Budget 2012-13, Personal Income tax exemption limit raised to Rs 2,00,000 from Rs 1,80,000 by just Rs 20,000; 10 % tax rate for Rs 2 - 5 Lakhs income bracket; 20 % tax rate for Rs 5 - 10 Lakhs income bracket and 30 % tax rate for income above Rs 10 Lakhs;

There seems to be a small benefit on tax burden based on the above but the overall budget analysis will shed you some light on whether it is a savings or tax burden for individuals;

Positive / Benefits of Budget 2012-13 Analysis for Individuals

First let's look at the blessings / benefits (positive) of Budget 2012-13, as below will be
self explanatory for treating this budget as blessing:

      1)     CHANGES IN PERSONAL INCOME TAX EXEMPTION LIMIT AND INCOME TAX SLAB RATES

Tax Gain will be increased for lower income group as the basic exemption limit is increased to Rs 2 Lakhs from Rs 1.8 Lakhs for individuals.

This increase in basic limitation limit will bring meagre savings of Rs 2,060 in tax for male individuals and a savings of Rs 1,030 for female individuals.

Tax Gain will also be increased for little higher income group as the 20 % tax rate slab is increased to Rs 10 Lakhs from Rs 8 Lakhs for individuals. They are the biggest beneficiaries in this budget.

This increase in tax slab rate to Rs 10 Lakhs will give you a flat tax relief benefit to the extent of Rs 20,600 for anyone who has income in excess of Rs 10 Lakh. Adding with the earlier tax benefit of Rs 2,060(M) & Rs 1,030(F) for difference of exemption limit from Rs 1.8 Lakh to Rs 2 Lakh, the total saving benefit for a male(M) individual will go up to Rs 22,660 and for a female(F) individual to Rs 21,630.

      2)    SAVE ON TAX TO EARN INTEREST UPTO RS.10,000 FOR SAVINGS BANK INTEREST EARNINGS

The Finance Minister has proposed a tax exemption of up to Rs 10,000 on interest earned from savings bank deposit accounts. This means you will earn interest of Rs.10,000 p.a by keeping in your savings bank continuously of i) Rs. 250,000 for 4% Interest Rate (currently 4% in most banks); ii) Rs. 200,000 for 5% Interest Rate; iii) Rs. 181,818.20 for 5.5% interest ; iv) Rs. 166,667 for 6%; You will not be taxed for this interest of Rs. 10,000. So Just Invest these amounts according to interest rates in bank & relax yourself by not worrying to pay tax for that earning of interest. Also if you have an income less than Rs. 5 Lakh, then it is not necessary to declare this interest earning to the employer for getting exemption from filing income tax return.

      3)    INVEST IN RAJIV GANDHI EQUITY SCHEME AND GET 50% TAX EXEMPTION

The Budget has provided an additional Income Tax deduction of 50 per cent (Rs. 25,000) on investments of up to Rs 50,000 a year in Rajiv Gandhi Equity Savings Scheme with three year lock-in period; But the exemption is restricted to the income tax payee whose income is less than Rs. 10 Lakh.

      4)    REDUCTION IN SECURITIES TRANSACTION TAX

The Securities Transaction Tax (STT) has been reduced by 20% from 0.125 percent to 0.1 percent on cash delivery based transactions (while buying and selling shares), so Investors will be benefited by investing in shares by reducing their expenses in form of STT reduction.

      5)    ANNUAL PREVENTIVE HEALTH CHECK-UP COST EXCLUDED UP TO RS. 5,000

The Finance Minister proposed a tax exemption of up to Rs 5,000 p.a under section 80D for health insurance for the annual preventive health check up expenses. Now it is possible to get a tax benefit from getting executive master health check-up done too. But actually there is no extra benefit as this amount is included within the overall present limit of Rs. 15,000 under Sec 80D for payment of health insurance premium.

      6)    CREDIT GUARANTEE FUND REDUCES EDUCATION LOAN INTEREST RATE

The finance minister has said that Credit Guarantee Fund is to be set up which is likely to reduce the risk of banks. For that reason, the banks might reduce the rate of interest on educational loans.

Drawbacks or Curse of Budget 2012-13

      1)      As said earlier in my previous post of http://subramoneyplanning.blogspot.com/2012/03/personal-income-tax-slabbudget-2012-13.html,There has been no extra benefit allowed for female taxpayers as the basic exemption limit for everyone stands at same Rs 2 lakh; so the gender difference has now been eliminated.

      2)     There will be a Tax Deduction at Source on the Sale of the Property when the value exceeds Rs 50 lakh in specified urban agglomeration and Rs 20 lakh in other areas. Since this has been introduced it will lead to a lot of situations where normal individuals will also have to pay tax on transactions that they undertake.

      3)     Individuals have to bear higher expenses for basic needs in the form of additional service and excise duty paid which composes a larger part of their household budget.

Though there seems to be so many benefits in this budget proposal, but this is overshadowed by increase in Service Tax & Excise Duty from 10% to 12%, as this includes most of the everyday life basic items; This will impact in increase in prices for eating out, staying in hotel, buying luxury cars, air travel, availing some professional services, branded retail garments and investing in gold jewellery etc.,

Categories: Tax Planning, Union Budget