The present Budget has made various amendments and changes in respect of income taxpayers. Here is the critical analysis and impact of the major changes in Budget 2012 in respect of personal Income Tax:
Ending the Positive Discrimination enjoyed by Women Taxpayers
Pre-Budget Scenario has seen higher exemption to women (Rs. 190000/-) than men (Rs. 180000/-) in respect of basic exemption limit. Now under this Budget, The basic exemption limit has proposed to be common for both men and women i.e. the positive discrimination between male and female has been done away with by proposing common exemption limit of Rs. 200000/-. Even though it would not have any major impact on tax savings but this move is more likely on the principle of treating women no differently from male taxpayers. The income tax liability w.e.f Assessment Year 2013-14(A.Y.) will differ only on account of age and income not on the basis of gender.
Keeping Mum on Deduction for Infrastructure Bonds
The deduction of Rs. 20000 under Section 80CCF for investment in infrastructure bonds was extended to A.Y. 2012-13 in last year budget to promote investment in infrastructure sector for its growth and development. But this time Mr. FM was silent on its continuance or otherwise. The lack of clarity on its scraping is a major concern. Views and expectations of Industry are mixed one, some expecting its continuance and some anticipating its scrapping. In my considered view the deduction shall likely be available next year also even though there is no announcement in the Budget in this regard. This view is further supported from the fact that Government has allowed Rs. 60000 Crore to be raised via tax-free infrastructure bonds this year. Till then just wait and watch.
Deduction of Rs. 10000 on Savings bank Interest- A Most awaited move
A new section 80TTA has been inserted to provide for deduction in respect of interest on savings account with Banks, Co-operative Society and Post Office. For recall to readers, 7 Years ago also under Section 80L exemption was available upto Rs. 12000/- in respect of interest on bonds, FD, savings account (which was scrapped in 2005), but new section provides for deduction only in respect of savings account. Now savings bank account will compete with fixed Deposits where interest is fully taxable. The present deduction makes the scheme of non-filing of returns by salaried taxpayers in case of salary income plus savings bank interest upto Rs. 5 Lacs more friendly and practicable in nature.
Preventive Health Check-ups (Section 80D w.e.f 01.04.2013)
At present deduction is allowed in respect of premium paid on health insurance policy (mediclaim) for insurance of self, spouse and dependent children or any contribution made to CGHS of Central Government upto a maximum of Rs. 15000/-. In this Budget, a deduction in respect of payment in respect of preventive health check-up has also been allowed subject to individual limit of Rs. 5000 and which is within the overall limit of Rs. 15000/-. For preventive health check up payment can also be made in cash unlike in health insurance policy. Thus, if premium on mediclaim is not fully covered upto Rs. 15000/- the proposed benefit can be useful and more tax effective.
Substantial relief to Small Taxpayers from Accounts and Audit(Section 44AB)
Budget 2010 had increased threshold limit for mandating audit of accounts in case of business from Rs. 40 Lacs to Rs. 60 lacs and in case of profession from Rs. 10 Lacs to Rs. 15 Lacs. Now again to give more relief to small taxpayers and reduce the scrutiny of genuine transactions so as to concentrate more on tax avoidance transactions, this limit has been increased from Rs. 60 lacs to Rs. 1 Crore in case of business and from Rs. 15 Lacs to Rs. 25 Lacs in case of profession. A corresponding change has also been made under Section 44AD related to presumptive taxation. Thus, those taxpayers who are not subject to tax audits can file their returns using ITR-4 or ITR4S also known as Sugam.
Rajiv Gandhi Equity Savings Scheme
To improve liquidity and attract investment from small investors in stock market a new Scheme has been proposed to be introduced wherein the retail investors shall be allowed to claim deduction to the extent of 50% of investments made by retail investors directly in equities and whose annual income is below Rs. 10 Lac. The maximum limit of investment for the purpose of deduction is Rs. 50000/-. Further a lock-in-period of 3 years has been proposed. This is literally a good move for promoting and encouraging flow of savings in capital market. But it is yet to apprehend in view of continuous volatility in capital market whether this scheme will attract investors and will be more economic friendly. The details of the Scheme are yet to be notified.
Alternate Minimum Tax for Non-Corporate Assesses
This move is indeed an unexpected and distinct in its category. Since last from many years the Company and then later on Limit Liability Partnership are liable to MAT at the rate of 18.5% on book profits in case their taxable income is lower than book profits. For the first time this provision has also been applied to partnership firms, sole proprietorship, association of persons etc. as Alternate Minimum Tax (AMT) at uniform rate of 18.5%. This amendment shall help to a certain extent in checking tax avoidance by small business groups which show losses or lower taxed profits whereas at the same time their book profits are much higher than taxable income. Here book profits are termed as ‘adjusted total income’ which refers to total income before giving effect to provisions of Chapter XII-BA and deductions Under Chapter VI-A and Section 10AA. Further, this provision shall not apply where adjusted total income does not exceed Rs. 20 Lac and credit for AMT shall also be allowed like in case of MAT credit.
Exemption to Senior Citizens from payment of advance tax
This amendment is again appreciating one (since only one in whole budget for benefit of senior Citizens). At present every assessee is required to pay advance tax if its liability exceeds Rs. 10,000/-. For purpose of reducing compliance burden on senior citizens who are not having any income from Business Head will no more required to pay advance tax.
Reduction in rates of Securities Transaction Tax
The industry including brokers, investors was strongly demanding cessation of securities transaction tax to make investment in capital market more attractive and investor friendly. But the Finance Minister sadly reduced the rate of STT marginally from 0.125% to 0.1% for both purchaser and seller only in case of delivery based transaction. This marginal reduction is hardly going to help investors significantly. Still this is a positive move.
Cash Donations in excess of Rs. 10,000
At present donation to various specified charitable institutions and funds are allowed as deduction under Section 80G and Section 80GGA of Income Tax Act, 1961. For making donation any eligible mode of payment has not been prescribed. The result is that donations can also be made in cash which renders it difficult to track the source of funds used for donation. This loophole has now been removed to provide that any donation in excess of Rs. 10000 shall be available for deduction only if made by mode other than cash.
Expectations which are still waiting for their being converted into reality
It is well known fact that over the last many years the purchasing power of the taxpayer has increased but alongwith the cost of necessary things has also increased thanks to increasing inflation. There are several exemptions that require revision and reasonable review with current economic times and situations. Following are examples of various allowances which are exempted at very lower level in comparison to expenditure incurred by employees in today’s scenario:
(i) Education Allowance: Current exemption limit of Rs. 100 per month is far behind from reality wherein actual cost of education has gone to much higher rates and thus requires revision.
(ii) Minor Child’s Income: Exemption limit of Rs. 1500 per year per child (maximum 2 children) requires to be revised instantly and reasonably.
(iii) Transport Allowance: Over the years costs of fuel/petrol shoot up drastically but exemption limit of transport allowance has not been revised still which was set up last time many years ago. This limit is subject to significant revision.
(iv) Interest on Home Loans: At present interest on borrowed capital for self-occupied residential property is limited to Rs. 1,50,000/-. But looking towards the cost of loan and sky rocketing prices of housing this limit is far away from reality and needs revision at the earliest so as to match the actual interest paid by the borrower.
Conclusion: Although the Present Budget has introduced some notable amendments and schemes but the Current Income Tax Act, 1961 (until Direct Tax Code not being effective) are subject to some more realistic and practicable changes to cope up with current economic situations.
CA Nikhil Mohan Jhanwar