Less room for middle-class dreams

Outlining the direct tax proposals in the Union Budget, Finance Minister P. Chidambaram mentioned that “there is a little room to give away tax revenues or the tax base; it is a time for prudence, restraint and patience”.

There are no major proposals to improve tax savings or purchasing power for the middle class. Let us look at some of the key proposals on personal taxation.

Tax rates and slabs: The one proposal eagerly awaited was an increase in the tax exemption limit or tax slabs. Unfortunately, there is no change.

Nevertheless, the Minister proposed a rebate of Rs 2,000 for resident taxpayers with taxable income of Rs 5 lakh or less.

The income tax rates remain as follows:

For income up to Rs 2 lakh (Rs 2.5 lakh or Rs 5 lakh for senior citizens) — nil;

Rs 2,00,001 to Rs 5 lakh — 10 per cent;

Rs 5,00,001 to Rs 10 lakh — 20 per cent;

Rs 10,00,001 and above — 30 per cent.

Tax benefit for first-home buyers: An additional deduction of Rs 1 lakh (in addition to normal deduction of Rs 1.5 lakh for self-occupied house) with respect to interest paid on the housing loan. The conditions for the deduction include

Loan sanctioned during April 1, 2013 to March 31, 2014, and loan amount not exceeding Rs 25 lakh;

Value of residential property should not exceed Rs 40 lakh;

The individual should not own any residential property on the loan sanction date.

Taxing super-rich: As expected, the Finance Minister has proposed to impose a surcharge of 10 per cent on individuals whose taxable income exceeds Rs 1 crore a year. This will also impact the expatriate population and increase the cost of cross-border assignments to India where expatriates are tax equalised.

The additional surcharge will be in force only for FY 2013-14.

Rajiv Gandhi Equity Scheme: To liberalise the conditions for incentive under the scheme, the deduction would be extended to investment in listed units of equity-oriented fund. Earlier the deduction was restricted to investment in listed equity shares. Also, the deduction is extended for three consecutive years and the threshold income limit for new retail investors has been increased from Rs 10 lakh to Rs 12 lakh.

Deduction for donation: Under existing provisions, donations to funds which are of national importance are eligible for 100 per cent deduction. However, a deduction of 50 per cent is allowed for contribution to National Children’s fund. This would be changed to 100 per cent deduction.

TDS on transfer of certain immovable properties: In order to have a reporting mechanism and collect tax at the earliest, a new section has been introduced in the Budget. Accordingly, the buyer of an immovable property (other than agricultural land) shall deduct tax at the rate of 1 per cent where the total consideration exceeds Rs 50 lakh.

Wealth tax: To enforce wealth tax compliance, the Central Board of Direct Taxes will make rules relating to e-filing of wealth tax returns. Also, the definition of urban land under the Wealth Tax Act would be changed.

Though the amendments pronounced in the budget will not affect the common man’s net pay, one should always keep a tab on the latest happenings to ensure compliance and proper financial planning.

Amarpal S. Chadha is Tax Partner, Ernst & Young

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