The budget did not live upto the expectations of many because rising inflation had created an expectation among people that this time they will get some major relief from taxation and were expecting exemptions upto 3 lakhs income and big raise in 80C limit as recommended by the parliamentary committee on DTC .But the Finance minister with lot of other political agenda has not raised to the expectations in many ways. Let us see the major changes in the budget for 2012-13.
1. New Tax Slabs
The minimum non taxable limit is increased from 1.8 Lakhs to 2 Lakhs and the 30% rate has been increased from 8 lakhs to 10 Lakhs. So the new tax slabs will be as follows.
Upto 2 Lakhs – Nil
2- 5 Lakhs – 10%
5-10 Lakhs – 20%
Above 10 Lakhs – 30%
For senior citizens aged 60, the limit is 2.5 Lakhs and for very senior citizens aged 80 and above, it is 5 Lakhs.
2. Changes in 80C, 80D
There are no changes in 80 C benefits from the present one. Since the DTC implementation date is deferred status quo is maintained in ELSS too. In effect you will get one more year to invest in ELSS to save tax with 3 year lock in period.
Till now, you were eligible to deduct Rs.15, 000/- towards a health insurance premium for self, spouse and children under Sec.80D. Now, within this, 15,000/- you can spend 5000/- for a health check up. This is a good step for those who are health conscious. Even you can use this 5000 for parent’s health check up, because there is a 15,000 limit for them also under Sec. 80 D (20,000 for senior citizen)
3. Invest in shares and get tax exemption
If your taxable income is less than 10 Lakhs, you can invest upto 50,000 in a year in direct equity and get an exemption upto 50% of the investment. So, if you invest 50,000 in shares in 2012-13, you will get an exemption of 25,000 from the taxable income. These investments will have a lock in period of 3 years. This is called Rajiv Gandhi Equity Savings Scheme.
There are some areas to be cleared in this. The option is available to only new retail investors. So will it be limited to those who are not having a Demat account so far? Will equity mutual funds also will be permitted in this or only shares? How to monitor that the investor is not selling the shares in the 3 years? Hope to get clarification on these in the coming days. If allowed for equity mutual funds also, this is a welcome step to increase retail participation in equities.
4. No tax on Savings Bank interest upto 10,000 in a year.
Till now, any interest earned from your savings bank account was taxable. Now the interest income upto 10,000 from savings bank interest will be exempted under Sec. 80 TTA. But how many investors are keeping around 2.5 Lakhs in Savings bank accounts to get an interest of 10,000 in a year? This will help those with income upto 5 lakhs in a year and no other income other than savings bank interest. As per the recent CBDT circular, those will be relieved from filing IT returns.
5. Reduction in Securities Transaction Tax
Whenever an equity transaction is done, STT is applicable and you have to pay it. It was 0.125% earlier, but now it is reduced to 0.1%. So it means you will have to pay less for your equity transactions. Good for those who buy/sell stocks/mutual funds frequently or in big quantities. But this not a major reduction, as the investors were expecting higher deduction.
6. Life Insurance premium should satisfy certain conditions for tax benefits
Any life insurance policy issued on or after 1st Apr 2012 will be eligible for tax exemption each year under 80C only if the yearly premium in all the years is below 10% of Sum Assured. Currently this percentage is 20%. So for example if you buy a life insurance policy with premium of Rs 20,000 for a Sum Assured of Rs 1, 00,000, then it will not qualify for tax exemptions because here premium is 20% of sum assured.
ULIPs sold with lesser sum assured will be affected because of this. If this condition is not satisfied, the maturity amount will be taxable also. Benefits of Sec. 10(10D) will not be applicable in such cases.
Existing policy holders will not be affected, because this is applicable to policies issued after 1st April. 2012.
7. Service tax increased from 10% to 12% and included more services.
This will affect all of us badly, because with increase in service tax, your bills for telephone, internet, hotel stay, eating out , travel cost, Life insurance and health insurance premium and several other kind of services will cost more, because we all pay service tax on all these things. So as service tax is increased from 10% to 12%, we will pay 2% more on the bill amount.
8. Increase in excise duty from 10% to 12%
Excise duty is increased from 10% to 12%. When manufacturers pay more tax, they will recover that from consumers, which in turn mean that a lot of goods will get costlier. It would include daily use items and what we consume in day-to-day life.
9. TDS of 1% at the time of Real estate sale
Whenever you sell your residential flat/house/ plot and the selling price is more than 50 lacs in urban area (20 Lakhs in other areas) you will have to compulsorily pay TDS @1%. This is actually a big problem, because it might happen that even though the sale value is above 50 lacs, you may plan to invest the proceeds in a new house to avoid long term capital gain tax.
So in such cases, you will have to claim that tax amount back by filing a return. Note that property registration will not be permitted without proof of deduction and payment of this TDS.
10. Donations in cash limited to 10,000 for Sec. 80 G.
Donation by way of cash is permitted upto 10,000 only. Any donation above that cannot be made in cash, for getting benefits under Sec. 80 G.
11. No tax benefits by investing in Infrastructure bonds
The reduction under Sec.80 CCF is not available from this year. So, you need not invest that 20,000 in infrastructure bond to save tax this year.
The marginal benefits in tax slabs will be taken away by the adverse impact on service tax and excise duty. The government is waiting for a suitable opportunity to increase the petroleum prices again. The subsidy projection for 2012-13 clearly shows that there will be price deregulation in diesel and cooking gas. Al together, this budget will affect the common man adversely.
Let us wait for the next budget in Feb. 2013 which will be an Election Special.