Contrary to expectations, the Budget gave taxpayers a pleasant surprise by broadening the tax slabs.
People were not expecting many changes in the tax proposals until the proposed direct tax code replaced the current taxation regime.
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Keeping the minimum exemption limit intact, the Budget proposal has increased the tax slabs by extending the maximum tax rate of 30% for individuals earning more than Rs8 lakh a year against the earlier Rs5 lakh limit. The tax slabs will apply in the fiscal year beginning 1 April.
Also See New income slabs (Graphic)
“This will result in a larger disposable income in the hands of the taxpayer, which in turn would increase demand. This has been a calibrated move to boost growth,” said Jay Shankar, chief economist, Religare Capital Markets Ltd. “The Budget does pave the way for a partial rollback of stimulus, but at the same time creates a balance by increasing disposable incomes.”
For an individual earning Rs5 lakh a year and availing a deduction of Rs1.2 lakh by making the required investments, the new tax slab would translate into savings of Rs12,600 as he would come under the 10% tax bracket and not the 20% slab.
For individuals earning Rs10 lakh or more, the benefit would remain at Rs57,680.
“Even though the Budget has not increased the basic exemption limit, expanding the tax slabs will mean savings for taxpayers,” said G. Ramaswamy, vice-president, Institute of Chartered Accountants of India, the regulator of auditors.
In addition to increasing the tax slab, the Budget has proposed replacing the income-tax return (ITR) forms with Saral-II forms to make the process of filing tax returns simpler. This form is meant for individual salaried taxpayers.
“ITR is meant for the business class or for individuals who have income from various sources,” said Ramaswamy. “For a salaried class (individual), his income and savings gets reflected in its Form 16. He can simply use his Form 16 and file his returns instead of filing ITR forms, which run into several pages and require a lot of data.”
Finance minister Pranab Mukherjee said the tax department was ready to notify the two-page Saral-II form for individual salaried taxpayers for the coming assessment year.