Budget 2008 is a definitely a dream come true for the common man. It provides much awaited relief by way of rejigging personal income tax slabs. While this has been a wish list in most pre-budget memoranda for the last few years, given the constraints of maintaining fiscal discipline, all that most people expected was token relief and not something as significant as what has been proposed. The apprehensions of the common man have been assuaged, with the finance minister completely overhauling the tax slabs for the individuals, resulting in a decrease in effective tax rate for all individual taxpayers.
The increase in the minimum threshold limit from Rs1.1 lakh to Rs1.5 lakh is a welcome move resulting in tax-free income for all up to Rs1.5 lakh. This limit is more for a resident woman to Rs1.8 lakh, from an earlier limit of Rs1.45 lakh; and for a resident senior citizen to Rs2.25 lakh from the earlier Rs1.95 lakh. The maximum tax rate of 30% is now applicable to income exceeding Rs5 lakh.
Expert View | Amitabh Singh
The change has resulted in the increase in the disposable income in the hands of individuals, which will boost consumption, savings and investments in the economy. The investment-friendly initiative of the finance minister has been to include a five-year time deposit in an account under the Post Office Time Deposit Rules, 1981, and deposit in an account under the Senior Citizens Savings Scheme Rules, 2004, within the overall limit of Rs1 lakh as provided in existing section 80C of the Income-tax Act, 1961.
Budget 2008 is also a senior citizen-friendly one as it provides tax concessions in the case of reverse mortgage homes and health insurance. When it was rolled out last year, the intention of the reverse mortgage was to secure a stream of cash flow against the mortgage of a residential house. In order to meet this objective, Budget 2008 proposes to exempt from capital gains tax the transfer of a house under a reverse mortgage scheme made and notified by the Centre.
The receipt of the loan amount under such a scheme is also exempt from income tax.
Further, with a view to providing health insurance cover to the elderly, the Budget also provides an additional deduction of Rs15,000 (Rs20,000 in case the parents are senior citizens) to an individual for paying the health insurance premium of his parents, regardless of whether they are dependant or not. This is surely going to encourage better medical coverage for parents and senior citizens.
All this, coupled with the possibility of cheaper cars and two-wheelers and some relief on the FBT (fringe benefit tax; a tax on expenses incurred by companies on their employees) front gives the common man every reason to smile and thank the finance minister.
The author is partner and leader, global mobility and employment taxes, Ernst & Young.
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