The Taxman plays a sweet and sour tune!

Chidambaram (Mr. P. Chidambaram, the honorable Finance Minister Of India, not be confues with Chidambaram, the town) does it again. Unveils a budget which has created a lot of discussion. What is the interesting thing about his budgets? You cannot generally fight over them! You may like a few points and dislike some others but by and large the chunk of his budgets seems to be logical (and keeps the voters happy – which is quite a happy balance as far as the government is concerned.)

I haven’t gone through the whole budget, and lets face it I wouldn’t understand half of it:) Nonetheless even I could not escape one or two points glaring out of me.

1. Abolishing section 88. Bad news for me…I had just started investing in a pension scheme. However I am not very sad, as those investments are not bad in the long run. And I am not a very big proponent of saving only for saving tax.

2. Standard deduction is out too. However it is compensated in another manner. A consolidated savings of 1 lakh can be removed from your income before tax. This is really good according to me rather than the old 20% gig.

3. In conjunction with the exemption level of 1.25 lakhs it seems to me that what they are saying is that if I earn 4 lakhs and save 1 lakh then my taxable income is 4 – 1 – 1.25 = 1.75 lakhs. Of course I will not wager my reputation on my understanding of this calculation. Please feel free to correct me if I am wrong.

4. The limit of 5 lakhs beyond which you could not get a tax break has been remove and there is no limit for tax-break based savings.

5. Surcharge still exists but only for an annual income of 10 lakhs and above. I guess this is fair.

6. A “fringe” tax of 0.1 % on withdrawal on “large” sums of money. Problem here is that the decided large sum is a paltry INR10,000. Supposedly it will help curb the black marketers. My take, simple harassment is sure to follow. People better than me have spoken about this at the MadMan’s shack and Anon’s adobe. It almost feels like one of the things that us sure to get repealed. In fact it seems that even Chidambaram is not very keen to support his stand

So all in all it seems a more sweet rather than a sour tune.

Well, that’s my two annas worth of views. I will update the post once I know more. Please feel free to correct me if I any of the stuff I have written above seems wrong. Also feel free to post your thoughts on the budget here. One good site for Indian finance is www.indiainfoline.com. I am adding the specific links to various articles about the budget on my links site too.

Deviation: I was happy to see my salary this week. The sum of the fact that I was allowing my tax to be deducted at source throughout the year and the fact that I did manage to save a wee bit has helped me get a salary this month without a tax cut. I think this is the first time I have got a salary in February which was in 5 digits. Thanks to my darling for forcing me to save!!! Of course she ain’t too happy I am spending it all again!!!

UPDATE: one more link, this time from MDI

UPDATE 2: Lots of updates on basis of useful comments to the blogs.
First Prateek informs me that the exemptable income is INR 1 lakhs and not 1.25 lakhs. My Bad!!!

Two, Madman clears my confusion over the calculation of the tax. I quote his comment
” If you earn Rs. 4 Lakhs and manage to put away Rs. 1 Lakh in instruments, your taxable income is Rs. 3 Lakhs.

Out of this, the first Rs. 1 Lakh is exempt from tax. One the balance, you pay tax as follows:

Rs. 1-1.5 L – 10% = 5000
Rs. 1.5-2.5 L – 20% = 20000
Balance Rs. 50000 – 30% = 15000

So your total tax = Rs. 40000″

So again I stand corrected.

Lastly Anon seems to be suggesting that even investment into MG and equities would be counted into savings. That I think is good news.

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5 thoughts on “The Taxman plays a sweet and sour tune!

  1. Just a minor correction dear… The exemption limit for you is Rs. 1 lakh (Rs. 1.25 lakhs is for women)… so ur taxable income becomes Rs. 2 Lakhs (in case u earn 4 L & save 1 L)…

  2. 3. In conjunction with the exemption level of 1.25 lakhs it seems to me that what they are saying is that if I earn 4 lakhs and save 1 lakh then my taxable income is 4 – 1 – 1.25 = 1.75 lakhs.
    No, you’ve got that very wrong.

    First, the “saving” doesn’t mean having money in your bank. It’s talking about contributions to PF, PPF, NSC, etc.

    Second, the exemption limit doesn’t work that way.

    If you earn Rs. 4 Lakhs and manage to put away Rs. 1 Lakh in instruments, your taxable income is Rs. 3 Lakhs.

    Out of this, the first Rs. 1 Lakh is exempt from tax. One the balance, you pay tax as follows:

    Rs. 1-1.5 L – 10% = 5000
    Rs. 1.5-2.5 L – 20% = 20000
    Balance Rs. 50000 – 30% = 15000

    So your total tax = Rs. 40000

  3. “Savings” mean that now you can invest in not only the usual stuff, but also MFs and equity.
    And now, having to pay life insurance premiums every time will *not* have any tax benefits!

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