The Hindu Business Line : Middle-class bowled over

People from the poorer strata of society have never shown any serious interest in Budgets much less in their nuances, though indirect tax proposals do impinge as much on their fortunes as they impinge on the fortunes of the well-heeled.

The rich do protest when Budget proposals go against their interests, but ultimately reconcile themselves to the new realities.

The chattering middle class however hangs to the lips of the Finance Minister and this time around he has made them ecstatic by granting generous income-tax sops.

Major hikes

The present tax-free limit of Rs 1.10 lakh for non-senior men is being hiked substantially to Rs 1.50 lakh for the assessment year (AY) 2009-10 while for non-senior ladies this is being hiked from Rs 1.45 lakh to Rs 1.80 lakh.

Senior citizens will not have to worry about tax so long as their income does not overshoot Rs 2.25 lakh. The icing on the cake however is the generous scaling up of the slab rates.

The first slab rate of 10 per cent applies on income between Rs 1,50,001 to Rs 3, 00,000; the second slab rate of 20 per cent applies on income between Rs 3, 00,001 to Rs 5, 00,000 and the maximum rate of 30 per cent on income exceeding Rs 5 lakh.

Unexpected generosity

One did not expect this generosity even in one’s wildest dreams.

To put things in a clearer perspective let us take the case of a salaried male with an income of Rs 5 lakh. Ignoring education cess, his present tax liability works out to Rs 99,000.

This now comes crashing down, much to his delight, to a modest Rs 55,000, a steep 45 per cent savings in tax which may well typify the average tax savings as a result of this extraordinary generosity by the Finance Minister given the fact that Rs 5 lakh as a rule of thumb can safely be taken as the average income of the middle class.

A middle class working lady is going to have Rs 3,000 more vis-À-vis her male counterpart in her pockets or handbag if you insist.

Seniors can relax

Senior citizens can now sleep easy. Not only can they partake of the new low slab rates but also draw solace from the fact that when they reverse mortgage their residential property, there would be absolutely no tax liability — no capital gains tax at the inception nor any recurring tax on the series of receipts. Their wards would take care of their health now that there is a special extra Rs 15,000 deductible under Section 80D for medical insurance premium paid on the health of the parents.

The Finance Minister hopes that this would force one to think twice before selling one’s investments before one year of acquiring the same because on long-term capital gains earned through bourses, there is absolutely no capital gains tax. His hopes hopefully will not go in vain. In its wake the markets would also be less volatile.