By Nikhil Bhatia
The Finance Minister has provided much expected relief in personal income taxes. Given the increasing cost of living, medical, education and housing, the relief may not be adequate but is a move in the right direction.
While there is no change to the individual tax rates, the tax liability for individuals will reduce owing to a higher threshold exemption limits and revised income slabs.
The proposed slabs of income and tax rates are as under:
|Upto Rs 150,000
|| Nil |
|Rs 150,001 to Rs 300,000
|Rs 300,001 to Rs 500,000
|Rs 500,001 and above
The threshold of exemption for resident women below the age of 65 has been enhanced to Rs 180,000 (from Rs 145,000) and for senior citizens to Rs 225,000 (from Rs 195,000).
The rates of surcharge (10 percent), education cess (two percent) and higher education cess (one per cent) have remained unchanged.
Accordingly, an individual having taxable income of Rs 5,00,000 would now save Rs 45,320 (around 44 percent) in taxes. The savings for senior citizens and women below the age of 65 would be in the range of 45 percent and 66 percent respectively.
The other significant changes impacting individuals are as under:
1. Short Term Capital Gains (STCG) arising from the transfer of equity shares or units of equity oriented mutual funds listed on an Indian Stock Exchange will now be taxable at 15 percent (as against 10%) plus surcharge and education cess.
2. In addition to the existing investment options such as Public Provident Fund (PPF), infrastructure bonds, bank fixed deposits (FD)s, etc. for the purpose of claiming deduction under section 80C (subject to a maximum of Rs 100,000), an individual now has the option of also investing under the Senior Citizens Savings Scheme or under a five year term deposit under the post office term deposit rules.
3. Currently, individuals can claim deduction upto Rs 15,000 in respect of Mediclaim Insurance Premium for self, spouse, dependent children and dependent parents. Under budget proposal, this limit has been enhanced such that the deduction can now be claimed for premium of upto Rs 15,000 for self, spouse and dependent children and further Rs 15,000 for parents. Where a parent is a senior citizen, the limit gets further enhanced to Rs 20,000. It should also be noted that it is not required for a parent to be a dependent parent.
4. Transactions relating to reverse mortgage scheme under which senior citizens can mortgage their capital assets and obtain a loan, it has been clarified that the mortgage of the capital assets will not be considered as a transfer for the purposes of capital gains nor will the receipt of loan be considered as income in the hands of the individual. Consequently, capital gains tax liability will arise only at the point where the mortgage property is alienated by the mortgagee for the purpose of recovering the loan.
In relation to Fringe Benefit Tax (FBT) on Employee Stock Ownership Plan (ESOP)s, hardship was created for mobile employees from whom the employers chose to recover FBT on ESOPs. Such employees, if liable to pay taxes in the overseas jurisdiction, may have had difficulty in claiming credit for such FBT suffered by them as FBT is really a corporate level tax.
With a view to remove this difficulty, the Finance Minister has proposed that such recovery of FBT from employees will be deemed to be personal income tax paid by the employee. This amendment is meant to be retrospective and will apply to any FBT recovered after 1 April 2007. It is, however, also clarified that any such deeming will not allow the individual to claim credit for such FBT against his other personal income and/or claim a refund from the tax department on that account.
This author, Nikhil Bhatia is Partner-Tax, BSR & Co.