A goody bag for middle class

Our tax expert, Ameet Patel analyses the budget 2008-09. All in all, he says it was a goody bag.

Source: Moneycontrol.com

Share . Email . Print . A+

By Ameet Patel

Mr P Chidambaram, the Finance Minister (FM) of India has presented yet another Budget on Friday. The overall thrust of the Budget appears to be towards spurring growth and providing a helping hand to a select few sections of the society viz. farmers, women, scheduled caste/ scheduled tribe (SC/ST), and the poor.

The waiver of the farm loans is a very major concession announced. This is bound to affect a large section of the society. While it is not clear how and from where the FM proposed to get this money, the most logical conclusion is that the taxpayer will bear the brunt. One hopes that the fine print of the Budget does not throw up unpleasant shocks for the taxpayer.

Let�s look at a few of the important changes proposed in the Income-tax Act which would affect the common man.

Increase in threshold limit for tax:

The most welcome amendment brought about by this Budget is the increase in threshold limits across the board for individual tax payers. The measures of simplification and also the steps taken to widen the tax base have definitely boosted the direct tax collections. Enthused by this, the FM has increased the threshold limits significantly this year.

The new slab rates would be as follows:

Type of tax payer

Income slabs

Tax Payable

Resident Senior Citizens

0 � 2,25,000

NIL

2,25,001 � 3,00,000

10%

3,00,001 � 5,00,000

7,500 + 20% of income above 3,00,000

5,00,001 & above

47,500 + 30% of income above 5,00,000

Resident Women below 65 years

0 � 1,80,000

NIL

1,80,001 � 3,00,000

10%

3,00,001 � 5,00,000

12,000 + 20% of income above 3,00,000

5,00,001 & above

52,000 + 30% of income above 5,00,000

Other Individuals

0 � 1,50,000

NIL

1,50,001 � 3,00,000

10%

3,00,001 � 5,00,000

15,000 + 20% of income above 3,00,000

5,00,001 & above

55,000 + 30% of income above 5,00,000

The surcharge and education cess continue at the same rates. Based on the above new slab rates, an individual (other than senior citizen and women) earning Rs 500,000 of income would save approximately Rs 44,000 now!

Reverse Mortgage for senior citizens:

Last year, the FM introduced this provision whereby senior citizens could mortgage their house and get a loan to help them sustain themselves.

The biggest hurdle in this scheme was the uncertainty revolving around the taxability of the loan amount received and also the doubt whether the mortgage itself resulted in a transfer of the house resulting in capital gains in the hands of the senior citizen.

In the Budget 2008, it is clarified that the reverse mortgage will not be considered as a �transfer� and therefore there will not be any capital gains on such a mortgage. At the same time, the loan amount received will not be considered as an income in the hands of the senior citizen. This is a very welcome move and will ensure that senior citizens are not put to hardship.

Deduction under section 80C:

There are no changes in the existing investment avenues under this section. However, two more have been added to the list. Now, a person investing in the Senior Citizens Savings Scheme 2004 or in the five year Time Deposit Account under the Post Office Time Deposit Rules, 1981 would be eligible for the deduction under this section subject to the limit of Rs 1 lakh per year.

Mediclaim benefit under Section 80D:

Presently, the deduction available under section 80D for mediclaim premium is restricted to Rs 15,000 and Rs 20,000 for a senior citizens.

In the Budget, it is proposed to give a double benefit under this section to those tax payers who also pay premium on the mediclaim policy of their parents who are senior citizens. The highest deduction that a person can now get under this section would be Rs 35,000 as against the existing Rs 20,000.

Continued in page 2

This author, Ameet Patel is a Partner, Sudit K. Parekh & Co., Chartered Accountants

1 2