Budget 2008 and You

Section 1

Direct Taxes and you
The fifth consecutive budget presented by the FM, Mr. P. Chidambaram, was also a dream one for the salaried class….. With the higher limits on the income tax slabs, the increased basic exemption limit for senior citizens, women and individuals in general, etc. the budget gives much needed relief to the middle class as it aims at reducing their overall tax liability by a good measure. Here’s taking a look at the direct tax proposals and the impact that they will have on your finances…….

Income tax slabs : The exemption limit for personal income tax has been enhanced to Rs 1.80 lakh from the present Rs. 1.45 lakh for women (below the age of 65 years), Rs. 2.25 lakh from the present Rs 1.95 lakh for senior citizens and Rs. 1.5 lakh from the present Rs. 1.1 lakh for others. The revised tax slabs are :

**** Revision of the income tax slabs will result in substantial savings across all income ranges…..

The revision of the income slabs and the applicable rates of tax will result in substantial savings for individuals across all income ranges. The following table gives a comparative analysis of the post budget savings that will accrue:

Tax liability computed is inclusive of surcharge and education cess…..

On similar lines, the savings potential for senior citizens due to the proposed income slabs and tax rates are as follows :

Tax liability computed is inclusive of surcharge and education cess….

Thus, there is immense saving potential for individual taxpayer’s cross all categories. The reduction in tax liabilities aims at making lives easier for the middle class. It also tries to enhance their purchasing power and, in the process, gives impetus to the demand and growth of the industry.

Long-term capital gains tax
There is no change in the existing provisions.

Short-term capital gains tax

The rate of short-term capital gains tax has been revised upwards to 15 per cent from the earlier 10 per cent [exclusive of surcharge and education cess] for equity investments.

The capital market did not react favorably to this news, as the tax liability of short-term traders will rise significantly.

Short term capital gains tax rates now applicable are :

(Short-term capital gains are gains arising wherein the investment term is less than 1 year)
Surcharge

Presently, surcharge is applicable at the rate of 10 per cent only when the total taxable income exceeds Rs 10 lakh. There is no change here….

Education cess

Education cess is presently applicable at the rate of 3 per cent on the income tax (inclusive of surcharge, if any). There is no change here….

Section 80D

With an objective or making health plans more attractive, the FM has proposed changes to section 80D.  Section 80D offers a tax deduction on the basis of the premium that you pay towards health insurance, subject to certain conditions. Presently, a deduction of Rs 15,000 (Rs. 20,000 for senior citizens) is available.

Budget 2008-09 proposes that an additional deduction of up to Rs 15,000 would be available if you pay health insurance premium(s) for your parent(s). The parent/(s) for which the health insurance plan is taken may or may not be your dependent.

Section 80C

Section 80C provides for a deduction of up to Rs 1 Lakh from taxable income in respect of payments made towards certain savings instruments and other specified payments. Two more investments have been added under this section – Senior citizens Savings Scheme 2004 and the Post Office Term Deposit Account.

Banking cash transaction tax

Presently, banking cash transaction tax is levied on certain banking transactions at the rate of 0.1 per cent of the value of the transaction, if the value is greater then Rs 50,000 (in case of individuals and HUFs)….
Budget 2008-09 proposes to abolish this tax with effect from April 1,2009.

Securities Transactions Tax (STT)

Though the STT rates have been left untouched, the following changes have been proposed:

• STT will be calculated only on the premium amount and not on the value of the premium multiplied by the strike price, as at present.
• Where the option is not exercised, STT will be payable by the seller and where the option is exercised, the levy will be on the buyer
• STT paid is to be treated as any other deductible expenditure against business income..

STT rates applicable are as follows :

Note:

• Applicable up to 31 May 2008
• Applicable with effect from 1 June 2008

Commodities Transactions Tax
Budget 2008-09 proposes to introduce a Commodities Transactions Tax (CTT), which will be levied for all transactions carried out in commodities exchanges, whether these transactions are on options or other commodity instruments.

Thus, if you are an active player in commodities, your transaction costs will rise….

Dividend Distribution Tax (DDT) structure

Budget 2008-09 proposes that the domestic parent company will be allowed to set off the dividend received from its domestic subsidiary companies against dividend distributed by the parent, provided the dividend received has suffered DDT and the parent company is not a subsidiary of another company.

This proves to be good news for all financial conglomerates and will enable them to structure and allocate capital to their businesses more efficiently. Further, the proposed change would help to mitigate the cascading effect of taxation on dividend.

Fringe Benefit Tax (FBT)

Crèche facilities, the sponsorship of an employee sports person, organizing sports events for employees and provision and maintenance of a guesthouse has been excluded from the ambit of FBT.

Due date for filing of a return of income

The due date for filing is proposed to be advanced to September 30, from the present October 31 in case of all persons (including individuals) whose accounts are required to be audited under section 44AB of the income-tax Act, 1961 [popularly known as Tax Audit]

Due date for filing of fringe benefit

The due date for filing of fringe benefits is proposed to be advanced to September 30, from the present October 31.

Compulsory quoting of PAN

Budget 2008-09 proposes to introduce compulsory quoting of the Permanent Account Number (PAN) in all financial market transactions, subject to suitable threshold exemption limits.

CONCLUSION

Budget 2008-09 reflects the Government’s growing confidence in the inherent strength and buoyancy of the economy and better tax compliance. This is reflected in a reduction in the tax liability on individuals and other entities too.

**** Budget 2008 is an indicator of the Government’s perception that the economy is buoyant…