While there are some direct benefits in the new Union Budget,there are some grey areas which will balance out the hike in the exemption limit. The race towards the Budget saw industry participants as well as retail investors keeping a close watch on how Finance Minister would be able to do the balancing act of fiscal prudence while providing some tax relief to people already under inflation pressure. The tax relief will result in additional savings of up to Rs 29,870 or around Rs 2,500 every month. The tax slabs have now been aligned with the proposed Direct Taxes Code (DTC). The biggest beneficiary of change in tax rates would be those with a net taxable income of upto Rs 10 lakh and above. However before you venture to take advantage of the same,it is prudent to understand the finer details of the new provisions. Changes in tax provisions While Budget 2012-13 ignored women in terms of any special benefit,the hike in the tax exemption limit from Rs 1.8 lakh to Rs 2 lakh brings an additional benefit for women on only Rs 10,000 as their current exemption limit stands at Rs 1.9 lakh. Thus,all women earning up to Rs 8 lakh will save only Rs 1,030 as against their male counterparts who would save just the double Rs 2,060. The major benefit comes for those earning in excess of Rs 8 lakh as the FM announced a shift in the 20 per cent tax slab by raising its cap from Rs 8 lakh to Rs 10 lakh. Individuals who paid a tax rate of 30 per cent for their income between Rs 8-10 lakh will now have to pay at the rate of 20 per cent and will end up saving an additional amount of up to Rs 20,600 (combined benefit of Rs 22,660). In addition to the benefits on account of raising the exemption limit and the hike in the tax slab,the FM also proposed to offer benefits on the interest earned on savings deposit. There will be an additional tax deduction available up to Rs 10,000 on savings bank account with banks and post offices resulting in annual saving of up to Rs 3,090 based on the marginal tax rate that one falls into. For the first time,the government introduced incentive to invest in direct equity which experts say will generate lot of interest among stock investors. Rajiv Gandhi Equity Saving Scheme will provide an opportunity to new investors to claim 50 per cent deduction on investment up to Rs 50,000 in equity and will have a lock-in period of three years. The scheme is however limited to those earning up to Rs 10 lakh and also offers to provide the tax benefit just once in a lifetime. For the income category of Rs 2 to Rs 5 lakh,the scheme would help save Rs 2,575 while those between Rs 5 to Rs 10 lakh income will be able to save Rs 5,150 annually. According to experts,this scheme marks an important and concrete measure towards making equities more attractive. Under Section 80C you can choose to put the money in fixed-income avenues like PPF instead of ELSS equity funds,and indeed,most of them do so. In the new scheme,theres no option. If you want this additional tax rebate,you have to invest in equity, said Dhirendra Kumar,CEO,Value Research. All the three provisions above show that those with taxable income between Rs 2 to Rs 5 lakh can save upto Rs 5,635 annually; between Rs 5 and Rs 8 lakh up to Rs 9,270; between Rs 8 to Rs 10 lakh Rs 29,870 and those with taxable income above Rs 10 lakh would be able to save Rs 25,750. This means that those that have their taxable income within the range of Rs 8 to Rs 10 lakh would be able to save maximum tax. However,the government announced a major dampner just before the Budget day by reducing the EPF rate to 8.25 per cent from the last year rate of 9.5 per cent. Those individuals who contribute additional amount as voluntary contribution to the EPF may need to have a relook at their investment portfolio. Investors with long term horizon and with some risk appetite may look at other tax saving options like the new equity scheme or equity linked savings scheme by the mutual funds. Other important points There will not be any deduction available under Section 80C towards the life insurance premium where the premium is more than 10 per cent of the sum assured. This would be applicable on the policies bought after April 1,2012. This comes as a good news for those looking to invest in insurance products as the companies would have to restructure products to offer more cover in same premium. Those who could not utilise the entire tax deduction limit of Rs 15,000 under Section 80D would be able to claim payment of up to Rs 5,000 towards health check up for self and family. Suppose your health insurance premium is Rs 8,000 and you spend Rs 5,000 on health check ups,you will be able to claim Rs 13,000 under Section 80D. FM has found a way to tax those who are careless in managing their personal finance and do not know how to account their income. There will be taxation of unexplained money,credits,investments,expenditures etc,at the highest rate of 30 per cent irrespective of the slab of income, Mukherjee announced. This means that if one fails to account for any interest income,or bonus etc,it will be taxed at the highest rate regardless of the tax slab s/he falls into. This is a good move which will make people financially more responsible. One must write down all kinds of interest,rentals,bonus etc kind of incomes which is easy to forget while filing tax returns, suggests Suresh Sadagopan,CEO,Ladder7 financial services. There is some saving for the self-employed who have the annual income between Rs 60 lakh and Rs 1 crore as the threshold limit for getting accounts audited has been raised to Rs 1 crore from current Rs 60 lakh. This will help businesses,within the above limit,save money spent on getting their account audited every year. If the money received from the sale of residential property is re-invested in the equity of small and medium enterprises in the manufacturing sector,depending on certain conditions,the long-term capital gains would not be taxable. One grey area which comes as a disappointment in the Budget is no mention of tax deduction benefit on infrastructure bonds up to Rs 20,000. The benefit was announced two years ago and last year was extension of the said deduction. However,this year there was no mention of it either in the budget speech or the explanatory memorandum. This will impact the overall annual tax savings to the extent of above mentioned figures. While the Budget proposals result in extra savings of upto Rs 2,500 per month it can be aligned with a financial goal to create a corpus towards that goal. Rs 2,500 invested in a monthly systematic investment plan of an equity mutual fund would fetch Rs 5.7 lakh in 10 years; Rs 24.7 lakh in 20 years and Rs 46.9 lakh at the end of 25 years,with an annualised return of 12 per cent. It will fetch Rs 6.8 lakh in ten years,Rs 37.4 lakh in 20 years and a whopping Rs 81 lakh in 25 years,at an annualised return of 15 per cent. Now the choice is up to an individual to spend this money towards monthly expenses or channelise it towards investments for a more secure financial future. ritukant.ojha@expressindia.com
