What are the tax implications post budget 09-10?

The only specific benefit for the salaried class in the budget is the scrapping of Fringe Benefit Tax. Companies may now be a bit more liberal with the perks offered to their executives. We can expect more on the ESOPS and Superannuation front as now they are free from the implications of the FBT.

A look at the tax implications on the various components of the Indian economy due to the Budget 09-10

There are taxes and there are taxes and then there are more taxes. Luckily unlike Mr. Chidambaram who had the knack of coming up with unorthodox (synonym for painful) and fancy taxes like the FBT, STT and CTT, Mr. Pranab Mukerjee seems to have other ideas. He has decided to abolish the CTT and FBT. This article gives a clearer perspective of the tax implications of the Budget presented on 06 July 2009.

Individual Income Tax

Disappointing increase in the tax slabs

There has been an increase in the income tax slab of Rs.15, 000/- for senior citizens and Rs.10,000/- for others. This means that the starting slabs become Rs.1.6 L for male taxpayers, Rs.1.9 L /- for female tax payers and Rs.2.4 L for senior citizens.

This increase is very low compared to the pre-budget expectations. But then, something is better than nothing.

Welcome deduction of the surcharge

The surcharge of 10% on income tax for tax payers who have income over Rs.10 L has been removed. This will benefit high income citizens of India.

Increase in Section DD deduction limit

The limit for deduction under Section 80DD for medical expenses to support dependents with severe disability has been increased to Rs.1 L from Rs.75, 000 earlier. This is a welcome measure as hospital and medical expenses have been increasing quite heavily.

Small Business Owners

The corporate tax rates remain unchanged.

Relief for businesses with a turnover of less than Rs.40 L

There is a good amount of administrative relief for small businesses which have a turnover of less than Rs.40 L. These businesses have an option to declare income at 8% of turnover and can be exempted from maintaining books of accounts. Also there is no need to pay advance tax. The tax payable can be paid along with the income tax returns filing. This could be a boost for all those small and medium businesses and budding entrepreneurs for whom maintaining accounts is a burdensome process.

Salaried Class

Abolishing of Fringe Benefit Tax

The only specific benefit for the salaried class in the budget is the scrapping of Fringe Benefit Tax. Companies may now be a bit more liberal with the perks offered to their executives. We can expect more on the ESOPS and Superannuation front as now they are free from the implications of the FBT.

Senior Citizens

Ex-servicemen get some benefits under the One Rank – One Pension Scheme. The benefit can be substantial if they have retired before 1^st January 2009. The basic idea being that people who retired earlier than 1997 will be getting lesser pension as compared to those who retired post 97. The more logical idea which has been mooted is to have a Rank based Pension scheme.

Students

Interest during the moratorium period has been fully subsidized for students from the economically weaker sections. This is for loans from scheduled banks for approved courses in technical & professional streams from recognized institutions in India only.

All fields of study including vocational courses after schooling get the benefit of deduction of interest for loans paid for pursuing higher studies under Section 80E. Earlier this was available only for specified fields of study.

Home Managers

The budget leaves a mixed feeling for the home managers of India.

– The duty on set-top-boxes goes up. But the duty on LCD TVs comes down.

– Duties on tea & coffee go up. That cup of Coffee/tea could be more costlier!

– Critical care expenses will come down as certain (10 in number) life saving drugs will cost less. Also certain heart related devices will cost lesser.

– But to make ourselves more beautiful by surgery is going to be much more costly as cosmetic and plastic surgery come under the service tax net. This will also negatively affect those who need to do plastic surgery due to accidents and burn wounds.

– Gold and Silver will cost higher for purchases in India and also if imported as part of personal baggage. Some respite is the lesser tax on branded jewellery.

Some things left unchanged are

– Food items like biscuits, sherbets, cakes and pastries

– Pressure cookers

– Electric Bulbs costing less than Rs.20 and

– CFLs (Compact Fluorescent Lamps)

– Dress materials made from both man-made and natural fibers are going to be costlier.

Common to All

The New Pension Scheme though will continue in the Exempt- Exempt-Tax regime have been given some internal operational benefits. Its income will not be taxed.

– The dividends that it receives will not be subject to Dividend Distribution Tax.

– The NPS will also be exempt from paying Securities Transaction Tax.

People who are buying cars and multi utility vehicles above 2000cc engine capacity will get a discount of Rs.5000/-. Peanuts probably for white elephants. This would apply for cars like the Scorpio, Sumo etc

All-in-all the budget was very way off what was expected in terms of tax reforms. But, at the same time one must agree that the Finance Minister has at least set the ball rolling in the right direction towards simpler tax structures.