Friday, March 16, 2012

Budget 2012 - What it means for the common man


By the time the finance minister had completed his budget speech, the Sensex had crashed over 200 points. This pretty much set the tone for what the budget offered - 'Nothing much'. There are some cosmetic 'tax breaks' offered which really doesn't help any one much. But there are some ways you could use this budget to your advantage:


1. Tax burden for Individuals to come down marginally:

The Income Tax exemption limit has been raised from Rs 1,80,000 to Rs 2,00,000 for both men and women. Till a year back women had a higher exemption limit but this year, the limit is the same for both men & women. So is this a major source of tax saving? No - this means a saving of Rs 2000/annum for men and Rs 1000/annum for women. 

The new tax slabs are as follows: 
a) 10% tax for 2-5 lakh income
b) 20% for 5-10 lakh and 
c) 30% beyond Rs 10 lakh. 

The advantage is for those who are earning a taxable income between Rs 8 lakhs - 10 lakhs. Their income is now taxed at 20% (from the earlier 30%). Hence they stand to save Rs 20,000 a year. So good news if you are in that category.

2. Rajiv Gandhi Equity Savings Scheme:

A new equity savings scheme named after Rajiv Gandhi was introduced to provide for income tax deduction of 50 percent for those who invest Rs.50,000 in equity and whose annual income is less than Rs.10 lakh. There would be a lock-in period of 3 years for this scheme. Currently the method through which an investor can claim tax relief by investing in equity is through the mutual fund route. This new scheme would help you claim tax relief on the shares you hold for the long term. I consider this to be a welcome new move. Once the actual details on the new scheme is out, people would get a better idea on how to use this provision. And I would be writing a detailed article on this new scheme in the coming days.

3.  Reduction of tax on Savings Bank interest and Securities Transactions:

There is a deduction of Rs 10,000 for income earned as savings bank interest so most people will gain on this front and it will make the filing of the returns easier.

Investors will be able to reduce their expenses when they are investing due to the reduction in the securities transaction tax on delivery based transactions.However for small investors this reduction is very marginal.

4. Reduction of EPF interest and TDS on Property sale:

The Employees Provident Fund interest has been reduced to 8.25% from the earlier 9.5%. A drop of 125 basis points would reduce the returns for small investors. A bigger problem would be the new Tax Deduction at Source on the sale of the property when the value of this exceeds Rs 50 lakh in specified urban agglomeration and Rs 20 lakh in other areas. This would raise the property transaction costs for the normal investor seeking to buy or sell property.




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