India:What Budget may have for aam admi

On the indirect tax front, there is expectation that the finance minister may increase service tax rate to 12% from the current 10% to garner more revenues. But such a decision could have negative implications for investors. The government may also decide to increase excise duty by the same amount. 

    A recent report by CARE Ratings noted that the deductions under section 80C may be revised to Rs 1.5 lakh from the existing limit of Rs 1 lakh to provide enhanced options of investment to individual tax payers. There could also be some concessions given to interest on bank deposits to encourage savings. The limit of deduction on interest paid against self-occupied property may be revised up to Rs 3.5 lakh per annum, the report noted. 
    There are also expectations that the Rs 20,000 per annum investment limit under Section 80C, which is exclusively for investing in infrastructure funds, could also be raised to Rs 50,000 per annum to boost retail investments in infrastructure funding. 
    The CARE Ratings report also pointed out that at present Securities Transaction Tax (STT) paid on purchase or sale of shares, derivatives and equity-oriented mutual funds, etc, is not allowed as deduction under the head capital gains. It is allowed only under profit and gains from business or profession and that, too, if the tax payer is engaged in the trading of shares. The STT paid may be included in the cost of acquisition and selling expenses under capital gains. This will help the capital market, the report pointed out. 
    On Friday, the Parliamentary standing committee on finance, in its final report, suggested reworking the current income tax slabs, sought exemption for income up to Rs 3 lakh and suggested that the highest tax rate of 30% should kick in on income of over Rs 20 lakh. To make the tax system more predictable, the panel recommended that the slabs be indexed to inflation, and also said that such a revision should be automatic. This means if in a particular year the rate of inflation is higher, the income level at which the 10%, 20% and 30% rate of income tax would kick in would also go up from the levels at which they were in the previous year. Such a decision will also help the government not to tinker with the tax laws on a regular basis. 
    The report, headed by former finance minister Yashwant Sinha, is seen as a tool that will help the government push through its Direct Taxes Code (DTC). The report also suggested that the exemption limit for life and health insurance, and education loans, be doubled to Rs 1 lakh. It also suggested that a separate deduction of Rs 50,000 be provided for those going for higher education. The other exemption that the Parliamentary panel has suggested is an additional one, of Rs 20,000, for purchasing medical insurance for elderly parents and grandparents. However, what could come as a disappointment for those who have home loans, the panel is silent on interest deduction on housing loan exemption, currently at Rs 1.5 lakh per annum. 
    The committee has recommended an exemption of Rs 3.2 lakh (excluding home loans), up from Rs 2.7 lakh (including home loans) at present. If the government accepts the recommendations of the Parliamentary panel, those with an annual income of up to Rs 6.2 lakh will be outside of the income tax net. Further concessions for women and senior citizens in the tax slabs have also been recommended in the report. The panel has suggested that the senior citizen cut-off age be lowered to 60 years, from 65 now. 
    The slabs suggested by the panel are far more liberal than those suggested in the DTC Bill, although it is lower than what was proposed in the draft Bill in 2009. 
FUTURE TO BE LESS TAXING? 
tParliamentary standing committee on finance has sought an exemption of 3.2 lakh (excluding home loans), up from 2.7 lakh (including home loans) now 
tIf the govt accepts the recommendations, those earning up to 6.2 lakh will be outside of the tax net