Jagoinvestor
February 26, 2010
New income tax slabs and its Impact on Common Man’s financial life
Finance Minister Pranab Mukherjee on Friday announced revised tax slabs for individual tax payers and also said that the New tax rates would offer relief to 60 per cent of taxpayers.
But looking at the below comparison between the tax payable last year and the proposed one it seems that the so called “Aam Aadmi”, the middle class would not be gaining so much tax benefits as there are absolutely no tax savings for the person earning up to Rs. 3 lakh p.a. and those who are earning up to Rs. 4 lakh would end up saving only Rs. 10,000.
New tax slabs would benefit greatly to the higher middle class as compared to the Aam Aadmi, though the additional investment of Rs. 20,000/- in the infrastructure bonds would provide some relief especially to those who are interested in traditional savings tools.
Introducing Saral-2 form back is a good initiative and would make it more Saral for the tax payers to file their IT returns without hassle as the current ITR are not easy for the taxpayers to prepare & file on their own.
In order to make tax compliance process more efficient two more CPCs (Centralized Processing Centre) are proposed to be set up apart from extending “Sevottam” a pilot project at Pune, Kochi and Chandigarh to four more cities in the year. Sevottam provides a single window system for registration of all applications including those for redressal of grievances as well as paper returns.
Long awaited increase in the limits for turnover over which accounts need to be audited is also enhanced to Rs. 60 lakhs for businesses and to Rs. 15 lakhs for professionals as compared to the existing limits of Rs.40 lakh and 10 lakh respectively.
Tax Slabs for 2010-2011
The basic threshold limit for income tax exemption will remain at Rs.1.60 lakh. Under the new proposal, 10 per cent tax will be levied between Rs.1,60,001 and Rs.5,00,000, 20 per cent on incomes between Rs.5,00,001 and Rs.8,00,000 and 30 per cent above Rs.8,00,000.
Apart from this you also get Rs 20,000 additional Tax benefit if you invest in long term Infrastructure Bonds.
Tax Slabs |
||
| OLD | NEW | TAX RATE |
| Upto Rs.1.6 lakh | Upto Rs.1.6 lakh | NIL |
| Rs.1.6 – 3 lakh | Rs.1.6 to 5 lakh | 10% |
| Rs.3 – 5 lakh | Rs.5 to 8 lakh | 20% |
| ABOVE Rs.5 lakh | ABOVE Rs.8 lakh | 30% |
| Tax Slabs | ||
| OLD | NEW | TAX RATE |
| Upto Rs.1.6 lakh | Upto Rs.1.6 lakh | NIL |
| Rs.1.6-3 lakh | Rs.1.6 to 5 lakh | 10% |
| Rs.3-5 lakh | Rs.5 to 8 lakh | 20% |
| ABOVE Rs.5 lakh | ABOVE Rs.8 lakh | 30% |
- Exemption Limit for Women : 1.9 Lacs
- Exemption Limit for Senior Citizen : 2.4 Lacs
How Much do you Save because of New Tax Slab?
What are your comments on New Tax Slab ? How is it going to Impact you?
This is a guest article written by Mr. Rishabh Parakh who is a Chartered Accountant and Director at MoneyPlant Consulting he had been contributing to leading newspapers like DNA & NavBharat (Money Plant Consulting is a premier outsourcing & a financial services provider which aims to offer solutions for all your financial needs and queries.)
Hi Manish,
I have a question. How many indians in age group of 20-29 earn upto 3 Lakhs.
Thanks,
Sukhmani
Hi Manish,
I have a question on House/Property income or loss!
Any idea on how to make use of this provision as I have recently taken a home loan and had got it renovated(repairs went to around 4 lacs ). Please let me know if I can declare this as loss on the currently letout property
Warm Regards,
Bose K
Hi Manish,
Does the Bond issued by NHAI (http://www.nhai.org/bonds1.html) fall under the 20000 bucket ?
Thanks
Suhas
No
Read this : http://www.indianexpress.com/news/tax-rebate-on-investment-up-to-rs-20-000-in-infra-bonds/644604/
[…] Tax Code is the new proposed bill for changing the tax rules in India. If it comes into effect from April 1, 2010, it will change the whole taxation system and will […]
[…] Lower Income tax for Women compared to Men […]
[…] by Manish Chauhan on March 14, 2010 With the tax-planning season about to end, most individuals are rushing around to make investments to minimise their tax liability. And although, the last date for filing income tax returns is just a few months away (July 31), some of us are still unaware about the procedure and guidelines. Chartered accountant Rishabh Parakh, who is the director of Money Plant Consulting, explains the do’s and don’ts about filing returns & doing your tax planning. Have a look at recent changes in the Income tax slab and how it affects the common man. […]
Dear Manish,
Hello, I am a reader of your blog since last one year, really you are doing a great job by educating, advising,aquainting,cautioning & by every possible means to people. By educating people they at least are saved from so many “financial Thugs” now a days !!. By proper advising to people regarding their financial problems you are again doing a wonderful job. My all hearty & warm wishes to you always.I cannot express my word of thanks, that you are doing a great help to humanness directly & indirectly. My salutes again!!!!!
@anoop,
Then it is just Broadcom (your employer) decision to avoid employees submitting fake rental receipts.
🙂 if owner refuses; then better to change flat…:) or company 🙂
Manish and other friends,
What is NPS and DTC ? Can any one explain more in detail or some useful links for those terms ? I know I can google but if there are any recommended readings …
Thanks,
Deepak
Deepak
Here you go
NPS : http://jagoinvestor.dev.diginnovators.site/2009/05/nps-new-pension-scheme-detailed.html
DTC : http://jagoinvestor.dev.diginnovators.site/2009/08/what-is-direct-tax-code-and-how-does-it.html
For more articles : http://jagoinvestor.dev.diginnovators.site/archives
Manish
Hi,
Lot of Discussion about DTC and its after effect.
We in india live heavily on subsidie sprovided by teh government.Yestearyears,We were on Fixed guaranteed returns by teh government which is almost vanished now.Then ther are subsidies on Petrol,LPG,Food and many others.
Indirectly there is also a subsidy on Tax Benefits to promote savings.This is EEE which means everything we save and get in return is tax Free.Due to this in India savings rate is very high or i can say the highest.
To cut subsidies in savings the option isEET which i beleive will be the future.our Honourable FM has very well clearly indicated of Moving to thsi structure but gradually.
We are afraid today because we have heard about the commitee recommendation given for DTC.I believe, like you and me our FM also knows if it is implemented as it is, it will kill everything.So my thinking is -it will be implemented but with modifications and keeping the high saving rate of indians in picture.
As far this budget goes its a well drafted budget with all reforms kept in mind.
Salaried class will surely get benefits by High Disposable income.Yes price rise or inflation is a concern and that FM has very well indicated by giving a fiscal Deficit target.Lets give some more time to him.
Jitendra
Why do you feel that DTC will destory everything .. I think it will not be that bad . yes the initial reaction may look bad and things will be heated in the start , but simplification in tax structure and high income through less taxes will help things somewhere 🙂
Manish
Manish,
What i mean was the recommendation from teh commitee has to be implemented with some modification.Because if its implemented as suggested it will be very harsh on small investors.Thsi our Hoonourable FM knows ant thats why the changes in tax structure has been done.May be we will see more bonanza from him before DTC is implemented.
Jitendra
Yes , i am sure it wont be possible for DTC to come in its original form , there has to be some big modifications 🙂 .
manish
If the said DTC comes into effect, i will b left with no option but to leave India….
:D:D:D
Why man .. why such a big change ? 😉
Manish
I think if govt comes with some plans where you can invest limited amount and it will be tax free at maturity in the long run will be good. Like PPF, you can invest only 70K and lock in period 15 years.
Or it could be like long term investment will be tax at lower rate like 10% or so. Right now what DTC stands is the we have to pay 30% tax on all long term investment as it will add our income to more than 25Lakh for sure. Even withdrawal according to the income slab will not help. or they can tax according to the slabs. Though it no longer remain simple then.
This will also help as we dont have any social security schemes.
-Anoop
Anoop , but we will also have more income now and more saving , so if we were having Rs 100 which was not taxed then after DTC comes , we will make more money like say 130-140 and then when we pay 30% on it .. again we will have same 100 .. little bit plus or minus
Manish
Hi,
Manish
I think removing the ELSS from 80C in DTC will have negative effect on market as people will not be interested to invest as they do not get any tax benefit even if they do invest. Then our options are limited either you have to apy tax else invest in Govt funds like PPF,LIC where we will get very low returns. Then financial Planning would be mess.What’s ur opinion on this?
Krishna
Even PPF will go away from 80C , we will have only NPS , life insurance premiums 🙂 under sec 66 which will replace 80C and we will get 3 lacs exemption. This is impact things badly , correct ..
Manish
@ Manish,
No, PPF is still part of 80C.
According to DTC, 80C includes PPF, NPS, Life insurance premiums, Super-Superannuation and Provident Fund (EPF) but maturity amount is taxed for all of these.
Err .. my bad .. i got confused !! You are right
manish
Hi,
Manish,
Then people have to rely on Endowment Policies of LIC to get tax benefit and even maturity amount will be taxed from that ,in that case you wont get atleast 5-6% return on money invested which is absurd ,there by Govt is making Middle class people life miserable.
Yes. DTC introduces EET, With this, one cannot avoid tax but can postpone paying tax.
we can mainly depend on PPF, NPS for tax saving and of course PF is anyway default.
It is like you do the debt part from the tax exempted limit of 3 Lakh like NPS, PPF etc and equity from MFs. I think section 80c is no longer there.
It could also be that new product will come into picture to give the max benefit. Secondly the focus of DTC is not on giving Tax saving incentives but to give money to the earner and let him spend and invest.
– Anoop
Anoop
I agree with your point.But my conecern is you have very limited options for investing with Products like EPF,NPS.Lets see does the govt.launch new schemes with better returns
Anoop 80C is there at the moment , but it will go away and sec 66 will come 🙂
Manish
Hi Manish,
I am paying around 1,30,000 as home loan interest but I rented it out and getting around 1,20,000/annum. How this impact in my new direct tax code if they take the home loan interest from tax deductions.
Ramesh
You will not get tax exemption of 1.3 lacs and your rent will be taxed as its income .
manish
My understanding is:
New tax code eliminates benefits for self occupied properties only. Rented properties can be used for tax purposes in the usual way.
See
There are several other articles on this.
Pattu
yes , thats correct … Tax exemptions on rented house will still be there 🙂 . So now , does it makes sense to buy a house on loan , give on rent and live in rented apartment 🙂
manish
Yes it is bad for people paying EMI on self-occupied property. However there will be some opposition to this and hopefully the benefits will stay
Pattu
I think big real estate companies and Big builders will not let this happen through internal contacts , else it will badly impact their margins 🙂
Manish
I think benefit has to be there and more so it should be for the right person and right reason. India gives full interest benefit to the rented house and limited tax benefit (1.5 L) for self occupied house. This is ridiculous. This is a great conspiracy of govt and realtors.
If the vision is that every family or person has atleast one house. Then we should encourage people to buy and stay in it. And give the tax benefit on those house only. House bought for investment (like second and more or not rent ones) should be taxed differently or no tax benefits. They should also be charged more interest rates for second house. This will remove speculation and will create genuine home owners and we can hope one house for one family at a reasonable cost.
Recently I read an article that China has tightened its norm for real estates. There people buying second home have to give more down payment (40%), more interest rates. Norm for lending for banks also made stricter.
We should also be like that. I feel that with so population and with less land, making real estate so much attractive option is unnecessary. It will be beneficial but speculation has to go away for everyone to have one atleast.
We are in need of real estate reform badly. But that will never happen. After it is biggest source and sink of black money in india and money generator for politicians.
-Anoop
Hi all,
Completely agree with Manish that new tax rebates will only benefit higher middle class. In my opinion, A person who gets a salary of Rs 1,00,000 per month have to pay
Rs 1,20,000 under new tax considering HRA/Home Loan exemptions and 80C investments which is just 10% for him. I consider people who get more than Rs25,000 per month as higher middle class. Govt should get more tax rebates for people who get less than 25,000 which will definitely increase the consumption as well.
In my view,
Basic exemption of tax should be increased without scope for medical bills, conveyance allowance or HRA. In my view, all fake bills should be avoided.
Home loan should be viewed as a long term investments which will come under 80C.
In other ideal view, non-salaried class are the ones who evades tax more. So every transaction or bill should quote PAN no which will pave way for more trasparency
Chandu
Nice ideas , How come home loan is in 80C after direct code tax ? It will be taxed once New tax code comes into picture 🙂
manish
yes. tax evasion is the main problem in India. Govt should use PAN in all transactions and make it computerized.
1. If we declare HRA then we should give PAN number of the Owner, Rent must be paid in non-cash mode and employee must submit bank statement for HRA claim;
in any case, if we tamper rent then more tax for owner.
2. Link all bank’s database to deduct TDS appropriately, Now people park money in different bank branch to evade tax.
3. I have never see any body adding interest earned from NSC during tax filing; At least IT dept can detect from the tax collected from the particular PAN what is high income group and add NSC interest and deduct tax. The software must be made intelligent to add these.
Most of the people took home loan to serve home need and tax purpose, those will be hit by DTC. Govt justification is having raised tax slab till 10L will work out. but industry and opposition parties argues for not moving home loan out of 80C.
Mr.Pranab also promised to consider the option saying “Having a home” is a big dream for the middle class citizen of India.
Need to wait and watch
yes,
tax evasion is the biggest problem as mentioned in my earlier comment, really dont know why govt is not taking actions against small & medium business class people as against the salaried class.
Srinivas you are absolutely right that people are not adding NSC int. but that is also not known to them the real wonder lies in bank interest and each and alomost every one is deriving income may be most nominal amount say 500 to 1000 bucks but as per IT act and after the abolition of sec. 80L entire interest income from all the bank accounts held should be added to total income and tax has to be paid thereon.
till date in last four years i have filed around 30000 tax returns and hardly .01% people had declared the interest and paid the tax thereon (inspite of informing them) reasons are:- since every body else is not declaring they also dont bother and Govt too is not taking any action against them as i think the cost of collecting the same must be more than their revenu 🙂
yes,
tax evasion is the biggest problem as mentioned in my earlier comment, really dont know why govt is not taking actions against small & medium business class people as against the salaried class.
Srinivas you are absolutely right that people are not adding NSC int. but that is also not known to them the real wonder lies in bank interest and each and alomost every one is deriving income may be most nominal amount say 500 to 1000 bucks but as per IT act and after the abolition of sec. 80L entire interest income from all the bank accounts held should be added to total income and tax has to be paid thereon.
till date in last four years i have filed around 30000 tax returns and hardly .01% people had declared the interest and paid the tax thereon (inspite of informing them) reasons are:- since every body else is not declaring they also dont bother and Govt too is not taking any action against them as i think the cost of collecting the same must be more than their revenue 🙂
Rishabh
the main reason why people dont declare FD interest is the awareness part , people are amazed to hear that its taxable, second part is lazyness to declare it .
What are the penalty for this ?
manish
Talking about HRA, if actual bills are made mandatory, then, i guess, lot of us will have to move at different places – since most of the owners would not be willing to consider ‘rent’ as a taxable income – worst still, we wont get rented houses, OR, they would give bills only of the amount that they could manage as “income” from house rent!
Nehal
Even now , Actual bills are mandatory !! .. people who give some other bills signed by someone else other than owner are not submitting right documents .
Manish
But the main problem is that now you have to give the PAN is mandatory with the reciept from next year. It means that receipts should be original not fake. Question is will owner will give you that?? My owner gave me some crap reason not to have a PAN.
If I change flat now, then i will have to talk about this also – Receipt with correct rent and PAN duly signed.
Regards,
Anoop
Anoop
Ohh .. I didnt have clear idea on this .. So from next year things are going to change..
surprise surprise .. Govt got sensible/logical !! ..
manish
@anoop
Though submitting PAN number of the owner is good, But I do not think govt can implement is so fast.
Can you point me where you read about this? I did not find it in DTC document
I did not read about it. In my company (Broadcom), the Account asked for it. They gave us this format. He also told me that from next year it will be compulsory.
So I just thought it is better to ask the owner in advance. Google did not show any result when i tried to search. Only issue will be that our company should accept the receipts we give them and don’t cite the rule as this is not approved by IT so we cannot take it.
Regards,
Anoop
Hi Manish,
The actual bills are mandatory, but very few of the employees submit actual bills. And some owners do not accept cheques – they need just cash. Third, PAN number quoting is very difficult – i have changed around 4-5 houses, and never found an owner who is willing to give his PAN number.
Hi Manish,
It seems that everyone is well convinced that DTC is cominng for sure. I feel there have many attempts in the past to reform Taxes but failed. Though the FM said in the budget but so far there was no discussion in the parliament and there is no such date planned to do so. Until it is not done in the parliament and if it is done then other political parties will let it pass in the same form, that has to be seen. Not because of govt majority but public defame by the opposition, govt may have to change. BJP already raised some issues, and Left and other will say that it is not for common man it is for HNI, and other high class guys.
I think everyone was thrilled with the propect of less tax but many (not all) ignored the fact we will be moving to EET. So the questions is will it help us as a common man?? Because many talk about EEE for the govt sake as it is not possible for the govt to do by putting pressure on the coffers. But what about the common man. For example right now I save some X ammount in MF SIPs keeping target Y in my mind as capital gain is not taxed. If DTC comes in to picture, then my target needs to be reset to some Y+Z as the total amount will be taxed and i got to add more to my total saving amount X. Say that is P. Now if with the DTC in place, I get P atleast then it is ok, otherwise I am at loss.
Secondly, it sovles the problem of simplication of taxes but does not solve the problems of
– incresing the Tax base
– Tax evasion. it hopes that low taxes will eliminate the problem. Is that true?? There are so citation of statistics. Bad habits die hard. People dont want to pay. For many 10% will be more and they want to hide. I think the problem of tax evasion is more in business than salaried class. Mostly corrupt people need to hide as they can not declare it (problem is different).
– Will not solve the corruption
I feel with existing laws, if tax evasion, better tax base and black money issues are solved, we can move to lower tax regime.
So lets see. DTC might remain in dreams, and we should not be surprised.
You might read different take http://new.valueresearchonline.com/story/h2_storyview.asp?str=101262
Regards,
Anoop
Anoop
I agree that DTC is still in dreams and its not that smooth for it to come ..
lets see how things goes, overall as you said benefits would be taken over by Tax at maturity 🙂
Manish
Positives about EET 🙂
yes there are many negatives as discussed about EET regime which is the favourite method of Governments to tax citizens worldwide.
EET will remove almost all the tax-free investments from the market. EET will bring in awareness to make investments with a purpose of creating wealth not just to save tax. In that way, EET is positive. Till date, in spite of the financial reforms happening for the past 15 years, Financial Planning in India:) = Tax Planning. This has been brought about because of the EEE regime.
Equating tax planning with financial planning has lead to financial disasters. Insurance Plans have been taken without life cover or adequate cover! Many business people have shown lower income in their tax returns. The list goes on… The effects of all these are to save on tax but lose out on wealth.
The opportunity is being now created to get out of “Saving Tax Mode” and get into “Creating Wealth Mode”.
hi All,
what do you think about this (& the only one, may be) positive:) site of EET???
Rishabh
Postive side for Product sellers 🙂 . its like a trap .
If some product A comes under TEE and other comes under EET , even tough the long term returns from A is higher than B , There would be 10 times more selling of B type products because of the same issue which you mentioned , Tax planning = financial planning 🙂
manish
As mentioned by Anoop, it will be a disastrous effect to have EET for products which have been EEE. This will actually increase money with the govt. and also increase the corruption (since govt. would not want to pass the benefits of tax back to tax payers!). We as individuals would rather be better off without DTC, at least we can depend on EEE investment instruments (PPF, ELSS, etc.)
NKanani
I think we are not seeing DTC in right way .. we are forgetting that we will also have high tax saving because of DTC , overall there will be a class that will benefit too . Apart from this .. lets wait for the time . DTC might come , but there will be many changes I believe .
manish
Eishah, Srinivas,
I have NPS as I am central govt servant. Its design of equity:debt ratio is pretty good.
50 equity upto age 3 and equity decreases every year upto 60 when it hits 10%
For a non-govt servant there may be processing fees involved and for them its like a cheap ULIP.
See here for instance
http://businesspandit.wordpress.com/2009/07/14/nps-not-cheap/
http://ibnlive.in.com/news/new-pension-scheme-dont-invest-yet/92660-15-p1.html
For a govt servant its a good scheme better then EPF However there are some disadvantages. If they deduct X from my monthly salary towards NPS, govt contributes X. My total taxable salary per month = salary+X.
IN my case 2X times 12 exceeds Rs. 1 lakh towards 80C and I don’t need any other tax saving instrument. However I have several others and am eagerly awaiting the new tax code.
A govt servant cannot change the equity:debt ratio but others can.
Pattu,
Thanks for sharing. I hope NPS will take some time to pick up.
I hope next year, news papers experts will start writing more about NPS.
We will also evaluate NPS in depth in coming days.
Thanks Srinivas,
This is good news. I need to only invest Rs. 20,000. So we need to wait and see which is an acceptable long term infrastructure bond. I will save Rs. 51500 in the new slab and using these bond I can go one slab lower. This leaves me a minimum of Rs. 5000 per month to invest elsewhere. A much need relief for me.
Pattu
Great to see that you will be benefitted .. but it can be little sad to know that there will be indirect more expenses like increase in medical insurance premium (as cash less has come into the purview of service tax, so insurers may pass on the costs to customer) , increase in rents or home prices (read it somewhere) .. please check
Manish
Hi All,
There are two issues to consider before buying these bonds, the fine print says the bonds will be notified by the Central government. Expect this to come in a month or two until then, it is unclear whether private companies would be allowed to issue such bonds.
The Budget has only said the new incarnation would be “long-term” the bonds could be for a minimum of five years or maybe as high as 10 years.
Also, unlike in the earlier version, where interest earned from these bonds was also tax-deductible to a certain extent, the new avatar will not offer any such benefit as Section 80L has long been abolished. It would be interesting to see the interest rates of these new infrastructure bonds and how competitive they would be.
Hi rishabh
Yes. It’s a good news. govt will contribute Rs.1000 for 3 years.
Considering the fact DTC has NPS in 80C, it would be better to open NPS in next financial year (2010-11) and get Rs.3000
DTC has only PPF, NPS, Insurance,EPF,Super superannuation. Though NPS does not have agents, from next year people will deviate and open NPS because it is part of tax saving.
I hope next year govt will gear up advertising to popularize NPS.
If else, I see LIC coming up with many policies and mis-directing people to buy endowment and non-term plans.
@Free Financial Calculators and All
The information you got from internet was very old which was applicable when we used to get 20% rebate on tax investments. this is almost 5 year old news
Your understanding is incorrect.
As per the budget 2010-11, You can claim tax benefit to the maximum of Rs,20,000 towards contribution to infrastructure bonds.
Govt only said investment in long term infrastructure bonds as may be notified by Central govt. Govt is yet to define Is same old infrastructure bonds to continue or define one more long term bonds.
A new section 80CCF will be inserted now. Wait till April end to get clarity on infrastructure bonds.
Manish,
Infrastructure bonds comes under sec 88. from what info I could get on the net, 20% of sum invested in these upto a max of 20,000 is deductible. So you would have to invets Rs. 1 lakh to get Rs. 20, 000 deduction. Also can you get these bonds only from ICICI and IDBI only?
@Free Financial Calculators and All
The information you got from internet was very old which was applicable when we used to get 20% rebate on tax investments. this is almost 5 year old news
Your understanding is incorrect.
As per the budget 2010-11, You can claim tax benefit to the maximum of Rs,20,000 towards contribution to infrastructure bonds.
Govt only said investment in long term infrastructure bonds as may be notified by Central govt. Govt is yet to define Is same old infrastructure bonds to continue or define one more long term bonds.
A new section 80CCF will be inserted now. Wait till April end to get clarity on infrastructure bonds.
Thanks Srinivas
Nice addition to information on this topic . .great
Manish