By Sandeep Shanbhag
On tax rates
The most significant measure in the budget is the rationalisation of tax rates and the increase in the tax exemption limits. The benefits accrue across the board. The minimum benefits including education cess and surcharge are Rs 4,120 for a normal individual and Rs 1,695 for women and Rs 6,180 for senior citizens. The maximum benefits are in the region of Rs 39,000 and Rs 35,000 respectively. So an individual earning more than Rs 10 lakh would almost save Rs 50,000 as tax. In pre- election year, this was more or less expected but this has exceeded the common man’s expectations.
On sops for senior citizens
Senior citizens have been significantly benefited. Reverse mortgage was hanging over fire from a long time as there was no clarity on the tax front. Now, it has been clarified that any payments that have been made either by way of a lumpsum or by way on installments on reverse mortgage would be fully tax free.
On capital gains tax
The other aspect of the budget which the market has reacted harshly is the increase in short term capital gain tax. It has been increased to 15% from earlier 10%. I believe that it is a good measure because it encourages long-term savings. Equity market is all about long-term and if there are some traders who want to exit within a year of buying equity, whether they pay 10% or 15%, it does not matter. It is not as terrible as the market is making out it to be.
On banking cash transaction tax
Banking cash transaction tax (BCTT) which is another irritant is said to be discontinued but that will happen only on 31 March 2009 and not immediately.
On health Insurance for individuals
Health insurance premium has almost doubled. Earlier an individual would get Rs 15,000 for himself and Rs 20,000 for a senior citizen. Now, if an individual were to insure his parents, then he will get a benefit of Rs 15,000 (Rs 20,000 if his parents are senior citizens) over and above the Rs 15,000 limit that he is eligible for his spouse, children and himself. This means, if you insure your father’s health, who is a senior citizen, then you stand to gain Rs 15,000 plus Rs 20,000, ie, Rs 35,000 as 80D deduction. This will significantly help investments or payments for medical insurance and it is almost a must in our country in the absence of Government guaranteed health benefits.
On securities transaction tax (STT) and fringe benefit tax
There has been minor rationalisation in fringe benefit tax. Also, STT for derivatives transactions has been modified. Earlier, 0.017% was being paid by those who were selling in options. Now, only if the option is exercised then the purchaser would have to pay 0.125%. This will be of a small benefit who deals in derivates segment.
On Commodities Transaction Tax
Commodities Transaction Tax (CTT) has been introduced. This CTT is very similar to the STT in the derivative segment.
On grouses from corporates
The corporate sector and mutual funds have been completely ignored. The corporate sectors were expecting some relief on the surcharge front if not on export-oriented units especially since the rupee has been appreciating and expected recession in the United States of America. The corporate sector would be miffed at being completely ignored.
At least, there are no adverse provisions in the budget for the corporate sector.
In the light of the fact that we have reasonably strong Gross Domestic Product (GDP) growth, capital markets have been buoyant; tax collections have been increasing day- by-day and have been unprecedented this year; forex reserves are healthy. So all in all one should be happy.
Sandeep Shanbhag is a chartered accountant and his area of expertise includes investment and tax planning for resident and NRI investors.