Budget 2012: What’s in store for you?

View quick summary The Budget 2012 was announced on March 16. Here, we talk about a few changes proposed by the Finance Minister, which will impact personal taxation directly. These proposals will become a part of the income tax law only when the parliament passes them.

Revised Slabs for Income Tax Exemption:

The key changes proposed are:

  • Exemption limit for individuals has been raised from Rs 1, 80,000/1, 90,000 to Rs 2,00,000.
  • Individuals coming under the 20% slab now have an upper limit of Rs 10 lakh, as against the previous limit of Rs 8 lakh.
  • Tax levied on income between the exemption limit and Rs. 5 Lakh will be 10%; increasing to 20% on income between Rs. 5 Lakh to Rs. 10 Lakh; and 30% on income above Rs. 10 Lakh.
  • As a result of this slab revision, taxpayers can now make additional savings between Rs. 1030 to Rs. 22,660.
  • For the senior citizens (aged between 60 to 80 years), the exemption limit will be Rs 2.5 lakh.
  • The above proposed changes in slab rates may not lead to any major tax advantage to an individual. The benefits introduced do not mitigate the taxpayer’s inability to combat rising inflation.

Deductions:

Budget 2012 has tabled the following deductions that can provide relief to the taxpayer’s tax burden:

If interest earned from a Savings Account doesn’t exceed Rs 10,000, you don’t pay tax on it.

Expenses up to Rs. 5000 on preventive health check-ups will be permissible for deductions under Section 80D. You may also claim this deduction for check-ups expenses made for your spouse, dependent children or parents.

With regards to the deduction by investment in Infrastructure Bonds u/s 80CCF, there was no mention of the extension of the said scheme in the budget. This may imply the non-applicability for AY 2013-14 of the deduction which was available for AY 2011-12 and AY 2012-13.

Exemptions:

Senior citizens not having income from business will be exempted from payment of advance tax. Though they continue to pay tax as per the same conditions as per law, they need not file tax amount three times a year.

Capital Gains tax on the sale of residential property will be exempt if sale consideration is used for:

  • subscription in equity of a manufacturing SME or
  • purchase of new plant and machinery.

At present, such gains have to be vested in certain bonds or reinvested in properties. Individuals and HUFs can also save themselves from paying the said tax by investing in start-ups.

Following the lines of countries like France and Sweden, a new endeavour has been proposed to boost household investments in equities – the Rajiv Gandhi Equity Savings Scheme. The scheme is proposed to allow for income tax deduction of 50% to new retail investors, who invest up to Rs. 50,000 directly in equities and whose annual income is below Rs. 10 lac. Alike ELSS, this proposal shall have a lock in period of 3 years. This means that if an individual invests Rs. 50,000 in equities, he shall be eligible to claim a tax deduction of Rs. 25,000 (50% of Rs. 50,000). This will lead to a maximum benefit of Rs. 5,000 for investors who fall in the slab of 20%. It is the first time that the government will offer a tax benefit for direct stock investment.

Other Proposed Changes:

Tax Deduction at Source (TDS) has been imposed on Real Estate deals and gold transactions in cash to crackdown on black money. Any transfer of immovable property, except agricultural land, worth Rs 50 Lakh in urban areas and over Rs 20 lakhs elsewhere, will be subject to 1% TDS. Similarly, a 1% tax on cash transactions of bullion and jewellery worth Rs 2 lakh will be collected at source

The Union Budget has also made the tax returns compulsory for the individuals owning assets abroad. The individuals will also have to present records of such assets for up to 16 years, if demanded by the tax officials.

For regular updates on income tax, subscribe to our newsletter. You can also opt for TaxOptimizer service that not only offers year-long SMS subscription for tax saving tips, but also assigns you a dedicated Chartered Accountant who helps you optimize the benefits of income tax law. To get further details, write to us at tax.optimizer@taxspanner.com

The Budget 2012 was announced on March 16. Here, we talk about a few changes proposed by the Finance Minister, which will impact personal taxation directly. These proposals will become a part of the income tax law only when the parliament passes them.

Revised Slabs for Income Tax Exemption

The key changes proposed are:

· On an average, individual taxpayers are set to gain Rs 2,000 p.a.

· Exemption limit for individuals has been raised from Rs 1, 80,000/1, 90,000 to Rs 2,00,000.

· Individuals coming under the 20% slab now have an upper limit of Rs 10 lakh, as against the previous limit of Rs 8 lakh.

· Tax levied on income between the exemption limit and Rs. 5 Lakh will be 10%; increasing to 20% on income between Rs. 5 Lakh to Rs. 10 Lakh; and 30% on income above Rs. 10 Lakh.

· For the senior citizens (aged between 60 to 80 years), the exemption limit will be Rs 2.5 lakh.

The above proposed changes in slab rates may not lead to any major tax advantage to an individual. The benefits introduced do not mitigate the taxpayer’s inability to combat rising inflation.

Deductions

Budget 2012 has tabled the following deductions that can provide relief to the taxpayer’s tax burden:

· If interest earned from a Savings Account doesn’t exceed Rs 10,000, you don’t pay tax on it.

· Expenses up to Rs. 5000 on preventive health check-ups will be permissible for deductions under Section 80D. You may also claim this deduction for check-ups expenses made for your spouse, dependent children or parents.

· With regards to the deduction by investment in Infrastructure Bonds u/s 80CCF, there was no mention of the extension of the said scheme in the budget. This may imply the non-applicability for AY 2013-14 of the deduction which was available for AY 2011-12 and AY 2012-13.

Exemptions

· Senior citizens not having income from business will be exempted from payment of advance tax. Though they continue to pay tax as per the same conditions as per law, they need not file tax amount three times a year.

· Capital Gains tax on the sale of residential property will be exempt if sale consideration is used for subscription in equity of a manufacturing SME or for purchase of new plant and machinery. At present, such gains have to be vested in certain bonds or reinvested in properties. Individuals and HUFs can also save themselves from paying the said tax by investing in start-ups.

· Following the lines of countries like France and Sweden, a new endeavor has been proposed to boost household investments in equities – the Rajiv Gandhi Equity Savings Scheme. The scheme is proposed to allow for income tax deduction of 50% to new retail investors, who invest up to Rs. 50,000 directly in equities and whose annual income is below Rs. 10 lac. Alike ELSS, this proposal shall have a lock in period of 3 years. This means that if an individual invests Rs. 50,000 in equities, he shall be eligible to claim a tax deduction of Rs. 25,000 (50% of Rs. 50,000). This will lead to a maximum benefit of Rs. 5,000 for investors who fall in the slab of 20%. It is the first time that the government will offer a tax benefit for direct stock investment.

Other Proposed Changes

· Tax Deduction at Source (TDS) has been imposed on Real Estate deals and gold transactions in cash to crackdown on black money. Any transfer of immovable property, except agricultural land, worth Rs 50 Lakh in urban areas and over Rs 20 lakhs elsewhere, will be subject to 1% TDS. Similarly, a 1% tax on cash transactions of bullion and jewellery worth Rs 2 lakh will also be deducted at source.

· The Union Budget has also made the tax returns compulsory for the individuals owning assets abroad. The individuals will also have to present records of such assets for up to 16 years, if demanded by the tax officials.

For regular updates on income tax, subscribe to our newsletter. You can also opt for TaxOptimizer service that not only offers year-long SMS subscription for tax saving tips, but also assigns you a dedicated Chartered Accountant who helps you optimize the benefits of income tax law. To get further details, write to us at tax.optimizer@taxspanner.com