Personal tax sees minor modifications in Budget 2011
Individuals will not have to undertake a major change in their tax saving and investment efforts for the financial year 2011-12 as the Union Budget has undertaken some minor tinkering with a few provisions.
February 28, 2011 / 17:27 IST
By: Arnav Pandya, Independent Finance Planner
Individuals will not have to undertake a major change in their tax saving and investment efforts for the financial year 2011-12 as the Union Budget has undertaken some minor tinkering with a few provisions. People at the two ends of the spectrum in the senior citizens category though will benefit from a lower tax benefit.There have been some small changes in the basic exemption limit that has been raised for two categories of individuals. The basic exemption limit refers to the amount that is not taxed for the individual. Income earned in excess of the basic exemption limit starts getting taxed at the various specified rates. A higher basic exemption limit means that the individual will be able to get a larger amount of money in their hands. The tax slabs remain the same which means that income in excess of the basic exemption limit till Rs 5 lakh is taxed at 10%, income between Rs 5-8 lakh is taxed at 20% and income above Rs 8 lakh is taxed at 30%.The basic exemption limit for male individuals below the age of 60 years has gone up to Rs 1.8 lakh from the Rs 1.6 lakh earlier. This means an additional Rs 20,000 of income will have a zero rate of tax and this translates into a tax savings of Rs 2,000 at the 10 per cent rate in which the income falls. The basic exemption limit for senior citizens has been raised to Rs 2.5 lakh from Rs 2.4 lakh which means a tax savings of Rs 1,000. The surprising thing is that there is no change in the basic exemption limit for women below the age of 60 years which means no benefit on this front in the budget for them. The real benefit is for those who fall within the age group of 60-64 years as the age for qualification as a senior citizen has been brought down to 60 from the existing 65 years. For all these people who will fall into the senior citizen category there is the higher basic exemption that they should look forward for. What this also means is that the age for being considered a senior citizen is now aligned across different areas like banks where there is a higher interest rate on deposits or railway concessions and income tax benefits.In addition those who are above 80 years of age will also get an additional benefit as for them the basic exemption limit has been raised to Rs 5 lakh which means they save an additional Rs 25,000 as tax when compared to other senior citizens in case they have taxable income equal to or higher than the Rs 5 lakh mark.There is also a change with respect to the tax benefit available for contribution to the New Pension Scheme (NPS). Currently contributions to the NPS by both the employer as well as the employee have to be counted for the tax benefit of a deduction. This area along with the specified investments under Section 80C in areas like provident fund, public provident fund, insurance premium, equity linked savings scheme, senior citizens savings scheme, repayment of principal on housing loan etc has an overall deduction limit of Rs 1 lakh. The change now proposes that the contribution of the Central Government or other employer to the NPS will not be eligible for the deduction. This means that the individual will have to take this out of the calculation and use only their own contributions while completing the required limit.In terms of investment there is little in terms of change that the individual will experience on the tax savings front. All the existing deductions remain and this includes the additional deduction of Rs 20,000 that was introduced last year for investments into infrastructure bonds. This means individuals will need Rs 1.2 lakh of investment under the specified areas to take the maximum benefit. In terms of selection of the areas they should look at their needs while taking the final decision. However there is one point that is important which is that the Direct Tax Code is proposed to be introduced from the 2012-13 financial year which will lead to the elimination of several tax saving routes. This includes areas like equity linked savings scheme, 5 years time deposit of post office, pension plans offered by mutual funds, senior citizens savings scheme etc. This means that it could be the last year for these areas as a tax saving option. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
