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AAM AADMI GETS ONLY GUTHLI!

Budget’s Income-tax Reliefs a Mockery of the Common Tax Payer reeling under Inflation!

The FM has been hailing the ‘Aam Aadmi’ in his economic manifesto and proposals. In the tax parlance, the ‘Common Taxpayer’ can be described as the FM’s ‘Aam Aadmi,’ who reeling with pain under current inflation was expecting an ‘Aam’ from the Union Budget 2011, but he has got only a ‘Guthli.’

MOCKERY OF THE COMMON TAXPAYER!

In his 75 minutes presentation of Part A of the Budget focusing on policy matters, the Finance Minister Pranab Mukherjee raised a lot of expectations.  When he diagnosed the problems of inflation, black money and corruption ailing the Indian Economy, he created expectations that he would have some bold and imaginative solutions to offer.  When he talked about his concern for Aam Aadmi, he raised hopes that he had a package of significant tax reliefs in store.

But at the end of his 40 minutes of Part B covering the tax proposals, it all turned out to be a damp squib!  A cruel mockery of the common taxpayer! With double digit inflation, as himself admitted by the FM, the puny Income-tax relief of Rs.2,000/- for taxpayers across the board (from the increase of Rs.20,000 in the individual exemption limit) would work out to just Rs.5.48 paise a day, not enough to even get half a cup of tea in most cities! On the inflation front, if Pranabda did not have a cure, he could at least have helped heal the wounds through some meaningful tax relief.

For female taxpayers below the age of 60, the FM offered them nothing more than the mere solace of reduction in Excise Duty from 10% to 1% for sanitary napkins and baby diapers!

 

RISE IN COLLECTION NOT MATCHED BY RAISE IN LIMITS!

Income-tax collection, which was Rs.34,438 crore in 2001-02 has been estimated to reach Rs.1,64,526 crore in 2011-12. This translates to a 4.8 times rise in the collection of personal Income-tax during the past ten years, by which benchmark, the exemption limit of Rs.50,000 in 2001-02 should have currently been Rs.2.40 lakhs. It has been raised to only Rs.1.80 lakh.

Ironically the common salaried earner, who not just honestly pays but infact pre-pays all his taxes by way of TDS, is most ill-treated when it comes to receiving meaningful reliefs from the FM.

The FM was prompt to talk about indexing the NREGA wages with inflation. However, he did not bother to even whisper about raising the 14 year old stagnant limits (since 1997) in respect of exemption for transport allowance, children’s education allowance and medical reimbursement expenses for his largest constituency of tax payers being the salaried class.

Difficult to believe, but true! If only, the salaried tax payer and investor had not been deprived of the ‘Real-time Tax Relief,’ due to him because of the lack of revision of various exemption and deduction limits, he would have Rs.99,189 more in his kitty today. (Refer Box).


How a Taxpayer is deprived of Real-time Tax Relief of Rs.99,189?


Item of Exemption/Deduction

Static Since

Static Limit

Rs.

Revised Limit

Rs.

Difference

Rs.

Housing Loan Interest

1999

1,50,000

3,00,000

1,50,000

Savings Limit u/s. 80C

2001

1,00,000

2,00,000

1,00,000

Medical Reimbursement

1998

15,000

50,000

35,000

Transport Allowance

1997

9,600

36,000

26,400

Children’s Education

1997

2,400

12,000

9,600

2,77,000

5,98,000

3,21,000

Note: Real-time Tax Relief of Rs.99,189 is computed on the basis of tax at 30.9% on the difference of Rs.3,21,000 of exemptions/deductions due to a tax payer, if the relevant limits had not remained ‘Static,’ but were ‘Revised’ keeping in pace with inflation.

 
BONANZA FOR SENIOR CITIZENS

Passionate pleas for promoting the Senior Citizen status to age 60 have thankfully been accepted by the FM this time. The only other noteworthy budgetary relief in personal Income-tax is for ‘Very Senior Citizens’ who will reap a healthy tax benefit of Rs.26,000/-. (Refer Box).

HOW MUCH INCOME-TAX SAVING FOR YOU IN BUDGET 2011?

     

Taxpayer  Category

Old Exemption Limit

Rs.

New

Exemption Limit

Rs.

Tax

Saving

Rs.

Male below 60 years

1,60,000

1,80,000

2,000

Female below 60 years

1,90,000

1,90,000

0

Male between 60 to 65 years

1,60,000

2,50,000

9,000

Female between 60 to 65 years

1,90,000

2,50,000

6,000

Male/Female 65 to 80 years

2,40,000

2,50,000

1,000

Male/Female 80 years & above

2,40,000

5,00,000

26,000

In the name of the Direct Tax Code (DTC) being round the corner, the FM has not introduced any other significant provision for non-corporate taxpayers, except some welcome modifications in the ‘New Pension System’ (NPS), which can be described as ‘a hidden gem’ of the Budget’s tax proposals.

SEZ Units now dumped in Sewage!

Over the past few years, a large number of Special Economic Zones (SEZs) have come to be developed in the country, mainly because of the two fold tax benefits of exemption from the 20% Minimum Alternate Tax (MAT) and 17% Dividend Distribution Tax (DDT).

In his Budget, on one hand, the FM has talked about new investment for growth and in the same breath, most mischievously withdrawn the MAT and DDT tax holiday for SEZ Developers and the MAT exemption available to SEZ Units with effect from the coming FY 2011-12.

Though there was no reference in the FM’s Speech, the other naughty provision relates to levy of Alternate Minimum Tax (AMT) on Limited Liability Partnerships (LLPs) at the rate of 18.5% on similar lines as MAT.

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