The Hindu Business Line : Here’s how the Budget affects you and me

For those of you who have just begun your career and are wondering why the Budget hogs so much of the limelight, here is a quick guide. We talk about how the Budget can affect you, as a salary earner, consumer and investor.

Why of exercise

Every year, the Central Government enacts fiscal policy or monetary policy changes to ensure that the economy continues to grow at a steady pace. While monetary policy deals with regulating the supply of money and credit by adjusting interest rates, fiscal policy includes raising or lowering taxes to achieve the government’s set goals for the economy.

The Union Budget summarises the government’s fiscal policy for the year. It also outlines the intended expenditure and anticipated revenue inflows to the country for the coming year. Adjustment to taxes, levies, adjustment in personal tax and excise duty rates are usually made in the Budget.

Personal taxation

The salary earned by individuals is subject to taxation with certain deductions allowed by the Income-Tax Act. Though tax planning, the calculation of net taxable income and filing of the tax return could be left to a chartered accountant, as an assessee it may help to be acquainted with the basic rates and changes in Income Tax discussed in the Budget.

On personal taxation, here are a few aspects that a salary earner can watch out for in the Budget. A change in the provisions relating to any of these would bring about a change in the tax liability of an individual.

Changes in Standard deduction allowed and rates of tax at different slabs.

Changes in provisions relating to deductions in respect of home loan/HRA, medical insurance premium, education loan, donations to charitable institutions.

Changes in the various deductions (contribution to Pension plans, Public Provident Fund, Equity linked saving schemes (ELSS), National Savings Certificate (NSC), stamp duty paid on land registration) allowed for savings instruments.

Changes in short and long-term capital gain (gain made in the sale of land, property, stocks, mutual fund units) tax rates.

Changes in overall surcharge rate and education cess.

A change in even one of the above would bring a considerable difference in the taxable income of an individual. Some might be relieved of tax to some extent and some others might see an increase in their tax incidence depending on the changes initiated in the Budget. Besides, those of you working for listed companies should also be abreast of the provisions relating to ESOPs (employee stock option plan) and their taxation. Adjustment in the capital gains tax rate and rules relating to long-term and short-term capital gain should be looked for in the Budget, as these would have implications for those who invest in stocks and mutual funds, apart from other assets such as property.

There could also be some industry-specific boosters in the Budget. For instance, some of you may be working with an IT/ITES company. If the Budget announces an extension of the tax holiday for software units located in software technology parks, then you could foresee better growth for your industry that year and possibly expect better rewards!

Expenditure front

Apart from the amendments to the direct taxation rates and provisions, the Budget also brings with it changes in the prevailing indirect tax rates, import duty, excise duty and service tax.

Excise duty is, in essence, a tax levied on manufactured goods. Typically, every product that is sold in the market will, in some way, come under the excise duty net.

A cut in the excise duty rate would make the respective product cheaper to the consumer and vice versa. Watch out for Budget proposals to amend the excise rates on FMCG products, appliances, durables, medicines, LPG, kerosene, construction materials (cement, steel, etc), two-wheelers, cars and many other goods. It may even make sense to postpone big-ticket purchases, if changes are expected in the Budget.

Changes in import or customs duty can make imported products cheaper or costlier for consumers and pose greater or lower competition to domestic manufacturers. So do track excise duty/import duty changes in the Budget, for its implications for your family’s monthly budget.

In addition to the above, changes in the service tax rate and inclusion or exclusions from the range of services that are chargeable to tax can also have a big impact on your monthly expenses. This is so because most of your everyday expenses include outlays on services that you use. The higher your income, the higher is likely to be your consumption of services rather than goods.

Your favourite restaurant where you have your noon meal charges you service tax; the sum you pay for movie and air tickets is inclusive of service tax; your credit card bill also encompasses the service tax charged by your card provider. Every year, the Finance Ministry expands the services under the service tax net. So better check out the Budget for likely changes in service tax, which could ramp up your monthly expenditure.

With the Budget for the year already announced, here’s a chance to run through those Budget pages once again; this time with a better understanding of how the Budget will affect you, as a taxpayer.

Check out the Budget for

Tax exemption limits and income tax rates Deductions allowed w.r.t: PPF, ELSS, NSC ESOP and its taxation Short and long-term capital gain tax rate and STT Excise duty levied on: Bikes, cars, consumer durables, medicines Excise duty on LPG and kerosene, petrol and diesel

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