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Personal income tax impact

BS Reporter  |  Mumbai 

Senior citizens should be a happy lot after the Budget. After meeting their long-standing demand of introducing parity in the defining age of senior citizens to 60, the Finance Minister has also introduced a special category – ‘very-senior’ for citizens over the age of 80, perhaps in tune with the rising life expectancy. And the basic exemption limit will be double than that of senior citizens at Rs 5 lakh. 

Earlier, while the retirement age of a person was 60, the tax benefits came only at the age of 65. This put senior citizens in a tough situation because they came in the higher tax bracket, even though they had retired.

But the good ends there. The other category of taxpayers will not feel too happy with the Finance Minister. The hike in the basic exemption limit by just Rs 20,000 for individuals – from Rs 1.6 lakh to Rs 1.8 lakh – is hardly substantial. This translates into a saving of just Rs 2,060 across income groups. Similarly, the hike in the exemption for senior citizens – from Rs 2.4 to Rs 2.5 lakh – is even smaller at just Rs 10,000. The net tax benefit is only Rs 1,030. And the exemption for women has not been changed as it stands at Rs 1.9 lakh.


“On the personal tax front, the FM has only taken a step towards the Direct Taxes Code regime. Clearly, an extra exemption of Rs 20,000 (Rs 2,000 less tax liability) isn't such a big relief for those in the higher tax bracket. We had expected the basic exemption limit to move up to Rs 2 lakh for all,” said Kaushik Mukherjee, Executive Director, Pricewaterhouse Coopers.

Mukherjee felt that the bigger disappointment was no change in exemption limit under Section 80C. There was an expectation of an extra exemption of Rs 50,000, excluding the exemption under infrastructure bonds. “There is a Standing Committee recommendation on the same with the Finance Ministry. The existing Rs 1 lakh under 80C is mostly fulfilled by contribution to provident fund,” added Mukherjee.

Very-senior citizens, with a taxable income of Rs 3 lakh stand to benefit. Between incomes of Rs 3 lakh- Rs 50 lakh, the benefit is between Rs 6180 – Rs 26,780. This is over and above the benefit they would get as senior citizens. In other words, say for taxable income of Rs 20 lakh, earlier they were paying income tax of Rs 4,59, 380. Now, for the same taxable income, they will pay a tax of Rs 4,32,600.

Besides these exemptions, the Union Budget has continued with the benefit of Rs 20,000 for infrastructure bonds under Section 80 CCF.

Amitabh Singh, partner, Ernst & Young feels that the FM has been moderate with his personal tax numbers because of inflationary pressures. “Individuals should be happy that there was no harsh measure taken in the inflationary environment. Higher tax sops would have meant more spending power to individuals and a rise in the demand-side inflation,” he said.

Income Male and not senior citizen Sr citizen 60-79 Sr citizen 80 and above
Existing Proposed Savings Existing Proposed Savings Existing Proposed

Savings

100000 0 0 0 0 0 0 0 0 0
200000 4120 2060 2060 0 0 0 0 0 0
300000 14420 12360 2060 6180 5150 1030 6180 0 6180
500000 35020 32960 2060 26780 25750 1030 26780 0 26780
700000 76220 74160 2060 67980 66950 1030 67980 41200 26780
1000000 158620 156560 2060 150380 149350 1030 150380 123600 26780
1500000 313120 311060 2060 304880 303850 1030 304880 278100 26780
2000000 467620 465560 2060 459380 458350 1030 459380 432600 26780
2500000 622120 620060 2060 613880 612850 1030 613880 587100 26780
5000000 1394620 1392560 2060 1386380 1385350 1030 1386380 1359600 26780
Notes
1) There is no change in the tax structure of female taxpayers who are not senior citizens
2) Taxpayers between 60 and 65 will benefit further as they will be considered senior citizens for FY12 vs normal taxpayers in FY11

First Published: Mon, February 28 2011. 18:55 IST
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