Income Tax payers get more exemptions

Income tax payers will feel happier after this Budget. Presenting the Union Budget for 2008-09 in the Lok Sabha, Finance Minister P Chidambaram today raised the basic exemption limit from Rs 1.1 lakh to 1.5 lakh for all male assesses. Also, the limit for women assessees has been hiked from Rs 1.45 lakh to 1.80 lakh and for senior citizens from 1.95 lakh to 2.25 lakh.

The reason: tax collections have been going up in the last few years. And the numbers speak for themselves. The tax to gross domestic product (GDP) has risen from 9.2% in 2003-04 to 12.5% in 2007-08.

The rise in the exemption limit basically implies that a person who was paying a tax of Rs 4,120 annually on his income of Rs 1.5 lakh will not be paying anything at all. Similarly, women assessees would save Rs 6,695 and senior citizens would save Rs 6,180 on income of Rs 1.8 lakh and 2.25 lakh, respectively.

Though this may sound like a small relief, when one goes through the numbers, income earners up to Rs 5 lakh are likely to save between Rs 40,000-45,000. However, the incremental saving over Rs 5 lakh income is just another Rs 5,000. For instance, an individual earning Rs 25 lakh, the savings is Rs 49, 852, Rs 49, 286 and Rs 43,621 for male, female and senior citizen, respectively.

Interestingly, Indian taxpayers will now be better off than those in the US. Says Kaushik Mukerjee, executive director, PricewaterhouseCoopers, "The finance minister has increased the threshold for personal tax exemption by about 35%, which is about $4,000. This is more than the basic threshold in the US where the ceiling is $3,400. However, we are yet to reach the levels of Australia ($5,500), UK ($11,000) or Singapore ($15,000). We were ahead of China already where the annual threshold in China is about $ 1400." Though this hike is substantial in relative terms, Mukherjee feels that it may take some time to catch up with countries like Australia, UK and Singapore.

Many also expected that the education cess of 3% should have also gone, but the FM did not announce any such moves. Also, the surcharge of 10% on the individual income of over Rs 10 lakh stays.

Also, the much-awaited relief on banking transaction tax will now be removed from April, 2009. This tax, 0.1% on transactions of Rs 25,000 on a single day, was introduced in the 2005-06 Budget. This created quite a stir among the consumers who felt that they were being tax again on the same income.

On the whole, the idea of FM seems to be to put more money in the hands of the consumer, which would give them more spending power. Given that there are worries of a slowdown in the two-wheelers and car segment, a little more cash at hand would definitely help consumers.

The new IT slabs, effective from the next fiscal year, would be as follows:

10% on income of Rs. 1.50 lakh to Rs 3 lakh;

20% on income of Rs 3 to Rs 5 lakh; and

30% on income of Rs 5 lakh onwards.