New Delhi, Feb. 26: If your salary comes into the taxable category, your tax incidence could be substantially lower in the next financial year. Finance minister Pranab Mukherjee has given relief to individual taxpayers by widening the personal income-tax slab, leaving more disposable income in the hands of individuals.Now those earning up to Rs 5 lakhs a year will be in the lowest 10 per cent slab, in contrast to the earlier Rs 3 lakhs. The exemption limit for tax-free income, however, remains unchanged at Rs 1.6 lakh for men and Rs 1.9 lakh for women.Those whose income is between Rs 5 lakhs up to Rs 8 lakhs a year will now be in the next slab, and have to pay 20 per cent in tax. All those with annual incomes above Rs 8 lakhs will be taxed at the rate of 30 per cent.“The further slackening of income-tax slabs will provide substantial relief to 60 per cent of taxpayers,” the finance minister said in his speech.Back-of-the-envelope calculations indicate that a male taxpayer with a net taxable income of Rs 8 lakhs will save income-tax to the extent of Rs 45,320 annually. An individual with annual taxable income of Rs 10 lakhs or above will save Rs 57,680 in taxes.“The savings will boost spending and ease pressure from a vast Indian middle-class which is fighting double-digit food inflation. The government is more focused on consumption-led growth, putting surplus cash in the hands of investors,” said Ajay Kumar, executive director of Pricewaterhouse Coo-pers. In addition to the existing limit of Rs 1 lakh for rebate under Section 80C of the Income-Tax Act, the Budget also proposes to allow a deduction of up to Rs 20,000 for investments in long-term infrastructure bonds. “A taxpayer can channelise more funds towards their chosen financial goals despite earning the same income. Also, to optimise the use of excess disposable income, a taxpayer should employ strategic asset allocation towards better asset creation in future,” said Ranjeet Mudholkar, principal adviser, Financial Planning Standards Board India.The government will also notify simpler tax return forms for salaried individuals called Saral-2 for assessments in the year 2010-11. Tax expert Subhash Lakhotia said: “Only individuals with annual incomes of more than Rs 5 lakhs will benefit from these direct tax changes. As the finance minister did not raise the initial exemption limit at all, for more than 80 per cent of taxpayers there will be no change. Introduction of the Saral-2 form from 2010-11 is good news as it will help taxpayers to fill the form without any hassles.”
Prashant Mukherjee and Shruti Verma Financial Chronicle