TIMES GUIDE TO PERSONAL TAX 2012

TIMES GUIDE TO PERSONAL TAX

Proposal: The basic threshold limit for income-tax has been revised upwards marginally for individual taxpayers (except senior citizens) from Rs 1,80,000 to Rs 2,00,000. Impact: This will result in a tax savings for Rs 2,060 (Rs 1,030 for women) across the board. Those having taxable income up to Rs 2,00,000 are out of income-tax ambit. P: While the tax slab rates (10% /20%/ 30%) remain the same, the trigger for the top tax slab (30%) has been raised from Rs 8,00,000 to Rs 10,00,000. I: This will result in a tax saving of upto Rs 20,600 (in addition to Rs 1,030/ Rs 2,030) for persons having income above Rs 8,00,000. P: Senior citizens are no longer required to pay advance tax, if they are not running any business/ profession. I: This will help reduce the compliance burden for senior citizens. However, they will need to pay their taxes before filing the annual return of income. P: A deduction of upto Rs 10,000 for interest from savings bank accounts is proposed while computing taxable income. I: This will save tax of upto Rs 3,090 on savings bank interest income. If taxable salary income is up to Rs 5,00,000 and interest from savings bank accounts is up to Rs 10,000, no tax return is to be filed.P: An additional avenue of Rs 5,000 is also available to cover expenses for preventive health check-ups for self and family members within the overall limit of Rs 15,000 for Mediclaim insurance premium. I: This will allow taxpayers to recover some part of such expenses and encourage them to keep a tab on their health. P: Capital gains from sale of house property will not be taxable, if invested in equity shares of eligible companies (typically SMEs). I: An additional avenue is now available to save tax on capital gains. This will also channelize funds to the small and medium enterprise (SME) sector. P: Additional deduction for infrastructure bonds of Rs 20,000 has not been extended beyond assessment year 2012-13. I: Such bonds will lose their attractiveness. P: Securities Transaction Tax (‘STT’) reduced on delivery based equity transactions by 20% from 0.125% to 0.1%. I: This will reduce the transaction cost of purchasing/ selling shares in the secondary market/ stock exchanges and give a fillip to the capital market. P: Tax benefits (deduction for premium or exemption for maturity proceeds) are no longer available to new life insurance policies having annual premiums of more than 10% of sum assured (this does not take into account the loyalty bonus component). I:New life insurance policies will not carry tax benefits any longer if premiums are more than 10% (presently 20%) of actual assured amount. The present life insurance policies thankfully will not be impacted by this change. P: Seller of immovable property with value exceeding Rs 5,000,000 for urban areas (Rs 2,000,000 for rural areas) will need to deduct tax at source @ 1% of the sale value, and pay it to the government treasury. I: While this will help in tracking/ bringing to tax the transactions in real estate sector generally, there would be an additional compliance burden to be undertaken by the seller. P: Additional tax of 1% will be collected at source from the buyer on cash purchases of jewellery, bullion, etc, if value exceeds Rs 2,00,000. I: While this is intended to track the cash transactions in the jewellery/ bullion market, additional tax levy would increase the cost of the purchase and create an administrative burden for the seller.POWERED BY ERNST & YOUNG

Savings a/c in your interest

TEAM TOI 

    Now, there’s a reason to laugh all the way to the bank. Finance minister Pranab Mukherjee has made interest income up to Rs 10,000 from a savings bank account exempt from tax. 
    Mukherjee said small taxpayers with income up to Rs 5 lakh and interest from savings account up to Rs 10,000 would not even be required to file returns. However, the benefit can be taken by any individual irrespective of their tax limit. 
    To earn an interest income of Rs 10,000, one will have to invest Rs 1,42,857 at 7% interest rate. As the RBI has freed the cap on interest that can be offered on savings account, banks are offering a higher rate, some as high as 7%. Now that this income is tax free, it offers an attractive return comparable to and sometimes even better than a fixed deposit. Normally, a bank would offer around 9% interest on FD. But if one is in the highest tax bracket, the net income from the fixed deposits post tax will be 6.30%. But if a person’s income is in the 20% slab, the net income post tax will be 7.2%. It will be 8.1% in the 10% tax bracket. Therefore, the person in the highest tax bracket will be better off if he keeps his money in a savings account. 
    The exemption will be available to deposits with a co-operative society, including a co-op land mortgage bank, a co-op land development bank, and a post office.

Welcome slab in your face

Real Benefit Is For Those Falling In Rs 8-10 Lakh Income Bracket

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Imust be cruel to be 
kind, said Finance 
Minister Pranab Mukherjee while quoting from Shakespeare’s Hamlet in his budget speech. If the hike in service tax was cruel, the kindest cut came by way of personal income-tax. The finance minister rejigged tax slabs to give assessees an extra Rs 4,500 crore in their pockets though the benefit accrues to a small number of taxpayers. 
    The first gain was with the raising of the tax exemption limit to Rs 2,00,000 for all individual taxpayers up to 60 years of age. Till last year, the exemption limit for men was Rs 1,80,000 and for women Rs 1,90,000. The raising of exemption limit by Rs 20,000 for male taxpayers and by Rs 10,000 for female taxpayers will benefit them by Rs 2,060 and Rs 1,030 respectively (see chart). According to the data provided by the finance ministry, this change is expected to benefit around 2.02 crore taxpayers. 
    The exemption limit for other two categories of taxpayers—age group of 60-80 and above 80 years—has remained unchanged at Rs 2 , 5 0 , 0 0 0 and Rs 5,00,000 respectively. 
    As there is no change in the slab till the income of Rs 8,00,000, the benefit of Rs 2,060 for men and Rs 1,030 for women taxpayers continues. It’s only after that the real benefit kicks in since the upper income limit for those in the 20% tax slab has been increased to Rs 10,00,000 from the present level of Rs 8,00,000. The net savings for individuals having an income of Rs 10,00,000 will be Rs 22,660 along with 3% cess on income tax. For women taxpayers, the savings will be Rs 21,630. The savings will remain the same after that even if income goes over a crore. 
    The maximum benefit of around Rs 22,000 due to new tax rates will accrue to only 5 lakh taxpayers of the total 3 crore assesses in the country. 
    The finance minister explained in his speech that he was enhancing the exemption limit as a move towards implementation of direct tax code (DTC) rates. “Although DTC will not be effective from this year, I propose to introduce the DTC rates for personal income tax,’’ he announced. 
    Interestingly, the tax rates proposed by the parliamentary standing committee on finance were different from what Mukherjee proposed in the budget. According to the committee report, income up to Rs 3,00,000 was made tax exempt. According to the report, income between Rs 3,00,000 and Rs 10,00,000 was chargeable at tax rate of 10%; between Rs 10,00,000 and Rs 20,00,000 at 20%; and income beyond Rs 20,00,000 at 30%. By introducing the new tax slabs a n d calling them the DTC rates, M u k h e r j e e made it clear that the standing committee report on tax rates will not be accepted. The standing committee had also suggested that the exemption limit should be automatically adjusted to inflation every year. Mukherjee, however, retained slabs for the other two categories of taxpayers—between the age group of 60-80 and above 80. The exemption limit for these two categories remained unchanged at Rs 2.5 lakh for taxpayers in the 60-80 age bracket and Rs 5 lakh for those above 80. 
But the upper limit of 20% tax slab increased to Rs 10,00,000 from Rs 8,00,000 in both categories. Therefore, taxpayers in these categories will save Rs 20,600 if their income is Rs 10 lakh and more. But taxpayers in these categories up to Rs 8,00,000 income will not save anything extra due the provisions in this budget.

Life insurance no longer a savings grace

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    For those whose primary objective is to build a retirement fund, life insurance as a savings instrument will lose its sheen. However, purchasing health insurance will become cheaper as payments for pre-acceptance medical tests will now be eligible for tax breaks. 
    The finance minister has doubled the minimum cover requirement under a life policy for it to be eligible for tax breaks. All forms of insurance — including life, health, motor and property — will also become more expensive because of the two percentage point increase in service tax. 
    The new limits for tax exemption eligibility under section 80C and 10 (10D) of the Income Tax Act has been revised from the previous sum assured-to-premium multiple of five times to 10 times. This is consistent with the proposal under the Direct Tax Code (DTC) which seeks to have a higher level of insurance under life policies, but at 20 times. 
    Until now, life insurance was an attractive avenue for accumulating savings for retirement. Now the gains will be vastly curtailed because a big chunk of the premium will go towards life cover.“Compared to the DTC, the Budget proposal is a welcome move,” said S B Mathur, secretary general of the Life Insurance Council. 
    An LIC official said those in the higher age group will now find it more expensive to buy a life cover. 
    According to Bhargav Dasgupta, MD, ICICI Lombard, the tax break of Rs 5,000 for preventive health check-ups will help in bringing a greater focus on preventive health care. General insurers say there’s another indirect benefit — health checks will enable early detection of ailments. 
    “It may also result in product innovation in the health insurance industry,” said Shashwat Sharma, partner, KPMG.

Bonds bridge the gap in infrastructure funding

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    Financial institutions and other lenders have been allowed to raise about Rs 60,000 crore from tax-free bonds in 2012-13, which is double that of last fiscal. The focus is on infusing a heavy dose of funding in infrastructure. 
    Of this, the NHAI, Indian Railway Finance Corporation, India Infrastructure Finance Company Ltd and the beleaguered power sector will get Rs 10,000 crore each. Hudco, National Housing Bank, SIDBI and ports will get Rs 5,000 crore each. 
    Pranab Mukherjee said investment in the sector will go up to Rs 50 lakh crore during the 12th Five-Year Plan (2012-17), about half of which is expected from the private sector. 
    “The total investment in infrastructure has increased from 5.7% of GDP in 2007 to around 8.0% in 2011. This year’s Budget aims for an increased growth rate between 9% and 10% with the fund-allocation of Rs 10,000 crore on developing the national highways alone,” said Rajesh Srivastava, MD of Meinhardt India, an infrastructure firm. 
    “The increased allocation for roads will lead to a higher demand for bitumen, which refiners like us will benefit from,” Essar Oil chief executive officer L K Gupta said. 
    “The proposal to harmonize the master list of infrastructure sector will be useful in removing ambiguity in the policy and encourage investment in infrastructure. The finance minister has stressed the importance of flagship programmes and nodal organizations responsible for progress in the sector,” said Vishwas Udgirkar, senior director of Deloitte in India.

Source: Times of India