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Rich get richer, rest get consolation

By BS Reporter
July 07, 2009 10:45 IST
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The 2009-10 Budget has brought smiles, especially to people in the higher income strata. Finance Minister Pranab Mukherjee on Monday raised the basic exemption limits for all income groups.

For men and women, the basic exemption limit was hiked by Rs 10,000. For men, the hike is from Rs 1.5 lakh (Rs 150,000) to Rs 1.6 lakh (Rs 160,000). For women, the rise was from Rs 1.8 lakh (Rs 180,000) to 1.9 lakh (Rs 190,000). For senior citizens, the limit was increased from Rs 2.25 lakh (Rs 225,000) to Rs 2.4 lakh (Rs 240,000), a rise of Rs 15,000.

However, the important move was to do away with the 10 per cent surcharge imposed on annual income of above Rs 10 lakh.

All about tax proposals

This means the government has returned Rs 11,700 crore (Rs 117 billion) to individual taxpayers. This amount was slated to be collected from the 10 per cent surcharge, according to the interim Budget estimates.

"While the hike of Rs 10,000 was not too significant, the removal of 10 per cent surcharge would allow an additional benefit of 3 per cent a year and increase the investible surplus," said N C Hegde, partner, Deloitte, Haskins and Sells.

The benefits kick in as soon as your salary crosses Rs 10 lakh. That is, for men who have taxable income of Rs 10 lakh, the saving is only Rs 1,030 a year.

If the income rises by even Rs 1 from there, the tax burden falls from Rs 232,265 to Rs 210,120, a saving of Rs 22,145. And for incomes of Rs 15 lakh-50 lakh, the savings would be between Rs 37,000 and Rs 145,000.

The new tax slabs

Another reason to smile for taxpayers in the higher income strata has been the hike in the wealth tax limit from Rs 15 lakh (Rs 1.5 million) to Rs 30 lakh (Rs 3 million).

At present, wealth tax is charged at 1 per cent. However, according to experts, our definition of highest income limit is much lower than countries abroad.

According to Parizad Sirwalla, partner, BSR &Co chartered accountants: "Our highest bracket (30 per cent tax limits) starts at Rs 5 lakh (Rs 500,000). In comparison, it is much higher in other countries."

In the United Kingdom, the highest tax is 40 per cent and kick-in is at Rs 25.92 lakh or Rs 2.592 million (Pound 1 = Rs 74.94).

Even in the United States, the highest tax of 35 per cent is for income of Rs 1.68 crore (Rs 16.8 million) ($1 = Rs 47.06).

Tax sops? Well, you will save only Rs 1,000!

In China, the highest tax is charged at 45 per cent for Rs 65.61 lakh or Rs 6.561 million (1CNY = Rs 5.47) upwards.

What has made tax experts happier is the clear route being proposed for taxation. The 45-day schedule for introduction of the draft direct tax code and its subsequent presentation in the winter session are quite positive.

The proposal to introduce Saral-II forms is likely to make individual taxpayers happy because the filing process could become much simpler.

"The finance minister has correctly argued that tax reform is a collection of many a milestone and not one single event. In direct taxes, one can look forward to the new direct tax code. Also welcome is the broader vision to harness technology to re-engineer processes to improve overall tax administration," said Shyamal Mukherjee, deputy tax leader, Pricewaterhouse Coopers.

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