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Budget 2010: Impact on your wallet

Published on Sat, Feb 27, 2010 at 13:34   |  Updated at Thu, Feb 10, 2011 at 12:45  |  Source : CNBC-TV18

Did the Finance Minister Pranab Mukherjee put more money into your wallet during his previous budget ?

Not much was expected considering that the Direct Tax Code (DTC) was to be implemented from April 1, 2011, yet the Minister came out with certain sops for the salary taxpayer.

While individuals would continue to be tax-exempt on incomes up to Rs 1.6 lakh, the Budget had proposed the 10% rate on a slab extending up to Rs 5 lakh, as against the current Rs 3 lakh.

Likewise, the 20% rate applied on income slabs beyond Rs 5 lakh and up to Rs 8 lakh, compared with the earlier Rs 3 lakh to Rs 5 lakh range. The maximum marginal rate of 30% was charged only on an income slab of above Rs 8 lakh, whereas this limit was at Rs 5 lakh earlier.

In an interview with CNBC-TV18, Subhash Lakhotia, Tax Guru; Sanjay Sinha, CEO of L&T Mutual Fund and Kamesh Goyal, Country Head of Bajaj Allianz Life Insurance evaluate the Union Budget and its impact on your wallet.

Below is the edited transcript of Subhash Lakhotia, Kamesh Goyal and Sanjay Sinha’s exclusive interview on CNBC-TV18. Also watch the video.

Q: Upto Rs 50,000 seems to be the benefit—more so for people who are earning above Rs 5 lakh—Rs 5 to 8 lakh and of course above Rs 8 lakh as well gets the Rs 50,000 benefit. But under Rs 5 lakh earners seem to be getting a lesser benefit?

Lakhotia: Yes, the individuals having income upto Rs 50,000 to Rs 5 lakh will save Rs 20,000 and individuals having income of Rs 8 or 10 lakh they will save nearly Rs 50,000 income tax saving. But the worst part is the common man having income Rs 25,000 per month—his saving is a big zero. Not a single rupee saving inspite of the fact we are having big rise in inflation and other things in the country—it’s still the poor man or the common man with income of Rs 25,000 per month—no income tax saving at all because the initial exemption limit has not been changed—that’s the big problem.

Q: When we were talking ahead of the Budget, you had asked for an increase in the exemption limit under 80 C. The FM has left that totally untouched.

Lakhotia: No changes made in 80 C—Rs 1 lakh continues and this Rs 20,000, which has been made is a separate section 80 CCF. That is also only in the case of infrastructure bonds. My emotions are taken away. If he would have increased from Rs 1 lakh to 2 lakh—it would have been best one but this Rs 20,000 forced to make the investment in infrastructure bonds only.

Q: Maybe somewhere the Minister had the Direct Tax Code in mind. The Direct Tax Code does talk of an exemption increase to Rs 3 lakh for instance—the draft one. The FM hasn’t moved anywhere closer to that although on the basic exemption, the FM has tried to move in that direction—very small steps compared to what the Direct Tax Code proposes—but he has tried to move.

Lakhotia: Not in the basic exemption, but in the slab rate, FM has moved and that’s pretty good. It gives a chance that yes we can expect in the DTC the tax regime of Rs 10 lakh income and 10% tax only because this time the tax slabs have been changed. They are pretty good and very ideal one for the individuals having Rs 10 lakh or so. They are going to be happy. They will be able to fight the inflation as they are facing today.

Q: Did you expect even this much from him? Were you surprised?

Lakhotia: Not surprised at all because what I expected was for the common man initial exemption limit of Rs 30,000 coupled with standard deduction for salaried employed. Salaried employed the standard deduction is completely missing in this Budget.

Q: When we were talking before the Budget, you were hopeful that while the DTC does hang on our head from next year and that might not allow the Minister to tinker around too much—are you disappointed that from an investment category point there hasn’t been an expansion of the 80 C window at all?

Sinha: Yes one would have expected because as we were discussing that the tax slabs have been tweaked and this tweaking has been to make it come a bit closer to what the DTC proposes to do. One would have expected that the same philosophy would have extended to the tax benefits that you have under the exempt-exempt and then tax category that the DTC proposes. So on that count one is little disappointed.

But if you look at the larger picture, the fact that there is larger disposable income in the hands of people who are probably in the upper income bracket, there could be a possibility of that larger income now getting directed to savings if it’s not getting consumed.

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