Mar 16, 2012, 05.31 PM | Source:

Budget 2012-13: What it means to the Aam Janta?

Budget 2012-2013 was a mixed rollercoaster ride for the retail investors. On one hand if personal income tax benefits have bought some cheers, the increase in service tax has forced to review their household budget. Read this space to know the full impact on retail investors.

Jitendra P.S.Solanki, CFP and Founder, JS Financial Advisors
Union Budget 2012-2013 was eagerly awaited. Expectation were built on raising exemption limits to Rs 3 lakh, continuing infra bonds deduction, change in tax rates, increase in benefits for education and enhancing health insurance benefits. All of these are an aam admi’s wish which makes his/her life going very smooth.

However, this year budget has made the ride more difficult. On one hand if personal income tax benefits have bought some cheers, the increase in service tax has forced to review their household budget.

Let’s figure out what is laid on the aam admi table and how is he getting impacted.

Personal Income Tax

The union budget has introduced DTC tax rates. The change has been made only for general category while tax slabs for others have been left unchanged. Senior citizens, who do not have business income, will now be exempted from paying advance tax.

New tax slabs:

Slabs (Rs) Rate %
0 – 200000 0
200001 – 500000 10
500001 – 100000 20
1000001 and above 30






The benefit was in line with expectation and according to the recommendations made by standing committee. The increase in exemption limit will bring some relief to common man. The small tax payer who keeps on looking for some benefit to reduce his/her taxability will be able to save a good amount through this change.


Income Rs Tax Before Budget Rs Tax After Budget Rs Savings Rs
200000 0 0 2060
500000 32960 30900 2060
1000000 156560 133900 22660




New Benefits

The union budget has tried to bring some cheers in the eyes of aam admi by implementing new changes in deductions on Savings & Investments-

  • Deduction on Interest income upto Rs 10000 p.a. from Savings Bank Account.
  • Amount of Rs 5000 on preventive health checkup will be available for deduction.
  • New investors with income below Rs 10 lakh investing up to Rs 50000 directly in equity markets will be able to claim a deduction of 50% under Rajiv Gandhi equity Linked Scheme
  • Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery
  • Reduction in securities transaction tax by 20 per cent on cash delivery transactions.
  • A Credit Guarantee Fund proposed to be set up for education.
  • More Tax Free Interest Bonds

Although, some of these benefits will cheer aam admi, one needs to look deeply. The implementation of Rajiv Gandhi Equity Scheme will lure investors to direct equities. But if it goes like ELSS as year end tax planning, it can have a drastic impact on investor’s money as risks are much higher. The health checkup cost exemption is a good move with respect to increasing medical cost and should help aam admi to avail regular medical checkup. Even benefits of savings a/c interest deduction will reduce taxability to some extent. The benefit of credit guarantee fund will help parents in availing cheaper loans for their children’s education. The exemption on real estate capital gain tax may not find much takers as the SME rule will be hard to implement for small investors who are more interested in fixed interest. Even the1% interest subsidy has not been much of a benefit uptil now. A STT reduction is cheered by broking companies more and no mention of tax saving infra bonds is a disappointment.

A Big Blow

A common man who is already burdened by jet increase in cost of household items will find going difficult. The increase in service tax will negate any increase in savings through personal income tax.

What is increased?

  • Service tax increased from 10% to 12%
  • Gold prices to rise

This has been the biggest negative in this year budget. Branded clothing, eating out, phone bills, coaching for children’s, will see a rise with increase in service tax. These and others like AC or fridge are necessary items which a common man is trying hard to afford. Buying a Car and a house are life time dream for them and increase in cost will make reaching these goals more difficult. The increase in gold prices might bring cheers to investors holding the instrument but small families saving to buy it for their children’s future will find hard to take a decision.

Was it Good or Bad?

The personal tax exemption was in line with DTC and more will be cleared as and when DTC gets implemented. If there are small benefits to cheer the underline rules makes it hard for aam admi. For next few months he will be struggling to rearrange his monthly budget to see where he can cut down to save more.

Jitendra P.S.Solanki

The author is a Certified Financial Planner and Founder of JS Financial Advisors. You can reach him at

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