The basic exemption limits of Rs 1,60,000 for male tax payers below 65; Rs 1,90,000 for women tax payers; and Rs 2,40,000 for senior citizens (age 65 years or more) have been retained. However, a major concession has been provided by revising the tax slabs.
Earlier, the 10 per cent tax rate applied to income ranging from the basic exemption limit up to Rs 3 lakh. Now the Rs 3 lakh limit has been raised to Rs 5 lakh. Earlier, income ranging from Rs 5 lakh to Rs 8 lakh attracted a marginal income tax rate of 30 per cent.
Now this rate is down to 20 per cent. And the highest marginal tax rate of 30 per cent, which earlier applied to income above Rs 5 lakh, will now apply to income above Rs 8 lakh.
Thus, taxpayers across the board will enjoy a reduction in personal tax liability. An individual taxpayer who pays Rs 54,000 by way of tax for the year ending March 31, 2010 on income of Rs 5 lakh will now pay Rs 34,000. Similarly, a woman taxpayer who pays Rs 51,000 will now pay Rs 31,000, and a senior citizen who pays Rs 46,000 will now pay only Rs 26,000 for the year ending March 31, 2011.
Education cess retained. The surcharge of 10 per cent on individual taxpayers was abolished last year. However, FM could have abolished the education cess of 3 per cent this year. He has not thought it fit to even offer an explanation in his budget speech for retaining the cess.
No change in 80C. FM has made no changes to Section 80C which gives deduction up to Rs 1 lakh if contributions are made to specified savings instruments like life insurance premium, provident fund, public provident fund, national savings certificate, Ulip, ELSS, etc.
Additional deduction. However, he has granted additional deduction of Rs 20,000 under a new Section 80CCF for contributions to infrastructure bonds to be notified hereafter. Effectively, the tax payer can now reduce his taxable income by Rs 1,20,000, in addition to the deduction available on health insurance premium.
Incentive for research. The FM has liberalised Section 35 to provide incentive for expenditure on scientific research carried out by taxpayers having income under the head "business". The weighted deduction on in-house research has been raised from 125 per cent to 175 per cent of the expenditure. In certain cases, the deduction can be 200 per cent. This is bound to be welcomed by business and industry and could lead to increased expenditure on scientific development and research.
Higher MAT
At present, corporates attract a flat tax of 30 per cent. They also attract 10 per cent surcharge and 3 per cent education cess. Hence their aggregate tax incidence is 33.99 (30 per cent + 10 per cent of 30 + 3 per cent of 33). The FM has reduced the surcharge of 10 per cent to 7.5 per cent - small cosmetic relief but has increased the Minimum Alternate Tax (MAT) from 15 per cent to 18 per cent.
Exemption on conversion to LLP
To encourage private companies and unlisted public companies to convert themselves into limited liability partnerships (LLP), the FM has provided exemption from capital gains arising to companies that opt to convert.
Excise duty broadly same
From 8 per cent FM has restored to 10 per cent the excise duty on certain types of vehicles. But broadly the 8 per cent rate has not been disturbed. This has made the manufacturing sector very happy.
Service tax unchanged
FM has not raised the service tax rate from the present 10 per cent. Instead he has widened the scope of services attracting service tax. This again is a very welcome move.
Bottomline
FM stated in his budget speech that as a result of his proposals on direct taxes, there will be revenue loss of Rs 26,000 crore. But he expects a revenue gain of Rs 46,500 crore as a result of his proposals on indirect taxes. Thereby he hopes to gain net Rs 20,500 crore for the year 2010-2011.
All in all, the budget had several pleasant surprises. The FM has done a rather good job of trying to balance his books. The stock markets have already signalled their approval of this year's budget with a 500-point rise in the Sensex.
Kanu Doshi
The author is a Mumbai-based chartered accountant
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