The Hindu Business Line : More for the middle-class

“I can now spend my last days peacefully” exulted the octogenarian Ramanathan after listening to the Budget speech of the Finance Minister for two hours with rapt attention. “Don’t talk of death at this happy hour,” admonished his teacher-daughter breezily entering the house. “I don’t have to invest huge sums in PPF now,” she gushed.

Indeed, the Finance Minister has, through an announcement that barely took less than 1 per cent of the budget speech, electrified middle-class homes. The steep reduction in income tax rates has put more money in their pockets. To wit, Ramanathan’s tax liability would come down sharply from Rs 26,000 to a modest Rs 7,500, a saving of Rs 18,500 on an income of Rs 3 lakh. In terms of percentage, the savings in tax liability translate to a whopping 71 per cent. Not only has the tax exemption threshold been hiked generously, the slab rates have also been rationalised, all contributing to considerable reduction in tax liability for the middle-class.

A non-senior male who now enjoys tax exemption on Rs 1.10 lakh will now do so on the first Rs 1.50 lakh just as his lady counterpart who now enjoys tax exemption on Rs 1.45 lakh will now do so on the first Rs 1.80 lakh. Senior citizens too have got the Finance Minister’s attention – the exemption limit for them has been hiked from Rs 1.95 lakh to Rs 2.25 lakh. The taxpayers’ cup of happiness is not full yet. For, the slab rates too have been revised in favour of the middle class. Thus only 10 per cent tax has to be paid on taxable income up to Rs 3 lakh, 20 per cent on income between Rs 3 lakh and Rs 5 lakh and 30 per cent on income exceeding Rs 5 lakh. Of course, the Ramanathan family does not invest in shares. Those who do, however, are in for a small financial setback. Hitherto they were getting away with a soft 10 per cent tax on short term capital gains earned through the bourses. Now they will have to pay 15 per cent. But the Finance Minister has not done it with revenue in his mind. He wants to reduce the volatility in the market. The heightened disincentive for short-term gains, hopefully, would goad people to hold on to their investments at least for a year because any sale made after a year is completely exempt from tax.

A minor nugget of budget information put Ramanathan in a fix. He has been mulling reverse mortgaging his house and the Finance Minister has just clarified that there would be absolutely no tax liability on amounts received from reverse mortgaging. First he was excited. But then he sobered down and dropped the idea “How can you leave a liability for your children to discharge”, she fumed.

Mulling over another nugget, his face lit up. All right, I will not expose my children to any financial burden but I will ask them to pay medical insurance premium, he mused. What caught his attention was the Budget proposal to allow an extra Rs 15,000 deduction for Mediclaim premium paid on the health of the parents.

The impact of the excise proposals on his family’s financial health began to sink in. He relished the idea of reduced prices of commodities and durables in the wake of reduction of the general excise duty rate from 16 to 14 per cent. And yes, his daughter can realise her dream of buying a small car, the excise duty on which is going to come down from 16 to 12 per cent.

(The writer is a Delhi-based chartered accountant.)

More Stories on : Income Tax | Budget

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page