Impact of Budget on an Individual

When the Finance Minister was about to present the budget, everyone was eagerly waiting for their goodies. Finally when the budget speech was over, the stock market tumbled, I could see most of the colleagues in the cafeteria wearing a dull look, friends called me to find out what in store for them. I have been listening to the budget for the 18 years and know how people react. But this time with the TV channels with all the analysts, businessmen, tax experts, stock market experts made it a BIG-B. Yes, lot of hype and also expectations were set. Be it increase in the basic exemption, increase in housing loan interest deduction limit, etc., So the common man was expecting more and also the industries. But when expectation was not met, there were reaction. Of course, the market reaction to global cues cannot be agreed, as it went up before the budget and started falling during the session. Let us see what are the impacts for an individual.

Direct Tax

• The basic exemption increased

The basic exemption was increased by 15,000 for Senior Citizens and by Rs.10,000. It means that non-senior citizens will save Rs.1,030 per year! (Rs.86 per month). What a saving. This small change will have lot of work for an organisation in changing their system for the payroll.

• Surcharge of 10% removed.

Those who are having a taxable income of Rs.10 lakhs and above will save a quite a bit. For example,
if taxable salary is...........saving would be
Uto Rs.10 Lakhs...........................Rs. .. 1,030 (0.5 %)
Rs.15 lakhs..................................Rs. 37,595 (9.3 %)
Rs.20 lakhs..................................Rs. 53,045 (9.3 %)
Rs.25 lakhs..................................Rs. 68,495 (9.2 %)
Rs.30 lakhs..................................Rs. 83,945 (9.2 %)
So, more the income, more the saving....is this the intent of the Finnance Minister. May be he thinks, the consumption will go up if the disposable income of the higher strata is more and the middle class will start saving (in Bank FD or Small savings) if they get more disposal income. If the saving is in PPF, NSS, NSC it increases the government borrowings and result in more interest burden to the government. Investment in Bank FD will force the bank to deploy and service the same.

• Commodities Transaction Tax (CTT) is removed

It means that those who are dealing in commodities got some relief. It is not stock market where small investors deal in small values. The value of the deal will be huge and the amount incurred on the CTT (about 0.017%) would be of high value. Now they can have a better margin.

• Fringe Benefit Tax (FBT) is removed

This is a good news for the corporate, as there is lot of administrative work involved in assessing and filing the FBT. But for an individual, it is not that good, as the Finance Minister plans to tax some reimbursement as perquisites. Some of them are ESOP, Contribution by employer to Superannuation in excess of Rs.1 lakh. More clarification is expected. Let us wait and see.

• Deduction for maintenance of dependents with severe disability increased

With the growing medical costs, the Finance Minister was kind enough to enhance the limit u/s 80DD by Rs.25,000. The earlier limit was Rs.75,000 and now we can get deduction upto Rs.1 Lakh.
I was expecting an increase in the medical reimbursement limit u/s 17, but disappointed.

• Deduction for interest on education loan criteria relaxed

The definition of higher eduction to claim deduction for the interest was relaxed to include education after the secondary schooling. This is a welcome sign, given that the cost of education is shooting up even in this economic downturn.

• Increase in the limit for paying advance tax liability u/s 208

Hitherto anyone who is having a tax liability of Rs.5,000 or more has to pay advance tax (subject to certain exemptions like tax arising out of capital gains etc.). However, if you are only having salary income, your TDS by your company will take care of this advance tax. Now, the limit has been increased to Rs.10,000. This will reduce some administrative burden on the department in collection of taxes.

Indirect Tax

It is a mixed reaction, as any excise or customs will impact our pocket. For example, the excise duty on branded jewelery is removed, customs duty on set top boxes increased, cost of LCD tv panel will cost less..and so on..

In all it is a good budget for the country and being a citizen of the country, we need to shoulder the responsibility. Of course the Government cannot wash their hands and ask the citizens to bear all. They have to bring down the inflation and try to get the cost down for us.

Cheers,
Gopal