Nirav Panchmatia's Blog

BUDGET 2012 Simplified for the retail Investor

So the d-day has arrived. The suspense relating to BUDGET 2012 is now out in the open and the Pandora’s box is has now opened.
Now, if you google “BUDGET 2012” now, you will get 100s of hits, if not more.
So why should you visit my BLOG today to read about the Budget?
Because here, I have attempted to remove all unnecessary info, data etc and the article below is written in a simple, easy to understand manner keeping the retail Investor’s point of you in mind.

No jazzy talk, no extra details, just talking plainly about the couple of things that matter most to a retail Investor like you and me.
So, what matters to a retail Investor in India?

What does a retail Investor look for in the BUDGET document?

According to me, the following things matter to a retail Investor?
1.What are the New Income Tax Rates applicable to me the next financial year (FY 2012-13)? Basically, tax kitna lagega are kitna tax bachha?
2.What is the impact on my Investments? Should I change my tax investments especially under section 80C where I can invest up to Rs. 1 lac and save tax?
3.What has changed under section 80Dthat deals with Medical Insurance? A section where up till last year I could pay medical Insurance premium and get deduction up to Rs.15,000 (Rs. 20,000 in case I am paying premium for parents who are Senior Citizens)
4.Any other extra deduction that I can avail off and therefore save some Income Tax?
5.What about changes in Indirect Tax laws or rates?
6.Any major legislative (tax laws) changes that I need to worry about? For example people were talking about Income Tax Act 1961 being abolished and replaced with DTC (Direct Tax Code).
7.So let me attempt to answer all the above questions one by one?
1.What are the New Income Tax Rates applicable to me the next financial year (FY 2012-13)? Basically, tax kitna lagega are kitna tax bachha?
Ok. Here is the Old Income Tax slabs (FY 2011-12)

Income Tax Slabs for FY 2011-12 (current Financial Year)

Income tax slabs 2011-2012 for General tax payers

Tax slab (in Rs.) Tax
0 to 1,80,000* No tax
1,80,001 to 5,00,000 10%
5,00,001 to 8,00,000 20%
Above 8,00,000 30%
*For Individuals other than Woman assesses and who are not Senior Citizens
Basic exemption limit for other assesses Rs.
Women assesses less than 60 years of age 1,90,000
Senior citizen (60 years to 80 years) 2,50,000
Very Senior citizens ( Age > 80 years) 5,00,000

And here are The Revised Income Tax Slabs as per Budget 2012 applicable to Individuals for next financial year (FY2012-13):

New Income Tax Slabs for FY 2012-13
(Next Financial Year 2012-13)

Income (Rs.)
Tax rate
(%)
Savings (Rs.)
Up to Rs. 2,00,000* of Income NIL Rs. 2,060
Rs. 2,00,001 to Rs. 5,00,000 10% Rs. 2,060
Rs. 5,00,001 to Rs. 10,00,000 20% Rs. 2,060
Above Rs. 10,00,000 30% Rs. 22,660

*For Individuals other than Woman assesses and who are not Senior Citizens

Basic exemption limit for other assesses Income (Rs.)
Women assesses less than 60 years of age 2,00,000
Senior citizen (60 years to 80 years) 2,50,000
Very Senior citizens ( Age > 80 years) 5,00,000

Source: DNA India

Comment:
As you can notice from above, Budget 2012 has given an income tax savings of mere Rs. 2,060 is available to an Individual male assesses earning income up to Rs. 8 lacs. However, if your income is above Rs. 8 lacs, than your tax savings next year is Rs. 22,660 approximately.

2.What is the impact on my Investments? Should I change my tax investments especially under section 80C where I can invest up to Rs. 1 lac and save tax?
The most important Section under the Income Tax Act to claim tax deduction is Sec 80C wherein you and I can invest in various instruments and claim tax deduction up to Rs. 1 lac. Well, fortunately or unfortunately, not much has changed under Sec 80C. Neither the investments avenues have been reduced nor added, barring a small clause on Insurance plans on which clarifications are awaited. Thankfully, and that GOD for this, the most profitable investment avenue u/s 80C, Tax Saving Mutual Funds or ELSS are still going to be there next here. This is the best thing that has happened according to me…(to know more about Tax Saving Mutual Funds or ELSS, read my past article titled INVEST and therefore SAVE tax and not vice versa)

3.What has changed under section 80D that deals with Medical Insurance? A section where up till last year I could pay medical Insurance premium and get deduction up to Rs.15,000 (Rs. 20,000 in case I am paying premium for parents who are Senior Citizens)
After you have used section 80C to avail deduction of Rs. 1 lac, the other option is to use Sec 80D and avail deduction of another Rs. 15,000 to Rs. 20,000 by paying premium towards Medical Insurance for Self, spouse and 2 children (Rs. 15,000) or parents who are senior citizens (Rs. 20,000). Now senior citizen up till last year meant citizens above 65 years of age. That definition of senior citizen has been revised to include citizen above 60 years of age. A good amendment according to me…
While the above limits of Rs. 15,000 and 20,000 still hold true, the FM has given an additional deduction of Rs. 5,000 if you have incurred it “on any payment made on account of preventive health check-up for yourself or any member of your family”. Also, a deduction is available even if this check-up cost is paid for in CASH. A small but necessary change… (I believe this will help you and me to avail tax deduction on those innumerable medical check-ups that our doctors make us to do throughout the year).

4.Any other extra deduction that I can avail off and therefore save some Income Tax?
YES.3 more avenues to save on Income Tax…

1.Till this financial year, even the nominal interest that you and I earned on our savings bank accounts (@ 4 %) was subject to tax. Going forward, Interest earned on deposits in Savings Account with Banks, Co-operative Societies and Post Offices shall not be taxed up till a maximum limit of Rs. 10,000 per annum. This deduction is available under a new section Sec 80TTA.
However, the above deduction until Rs. 10,000 is applicable to Individuals & HUFs only and not to Firms, associations and companies and the deduction is available for Interest earned on Savings accounts only and not applicable for Interest earned on Fixed Deposits. (that’s why Debt Mutual Funds give better income post-tax then Bank FD’s; read my article “The Rich Man’s Bank Accounts” )

2.One more, more options for tax-free bonds would be available next financial year. Further clarification awaited.

3.One more to go. Yes, one extra Investment avenue has been added but not much clarity on it available yet. Even the Govt of India and the Finance Minister wants you to Invest in the Stock Markets. This in order to boost investment in the equity markets, FM has introduced Rajiv Gandhi Equity Savings scheme. The scheme allows for Income Tax (I-T) deduction of 50 percent to new retail investors, who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh. The scheme will have a lock-in period of three years. The details of the scheme will be announced in due course.

4.No Income tax return to be filed for Salary Income below Rs. 500,000; not a deduction but a relief to newly salaried guy…

5.What about changes in Indirect Tax laws or rates?
Yes, after good news comes some bad news. While the FM has given us some avenues to save Income Tax, he has given us a double whammy by increasing tax rates on Excise as well as Service tax rates that do not impact us directly but go on to increase prices of goods and services that we consume and therefore pinched our pocket.

a.Standard Rates of Excise duty(a tax on manufacture of goods that is passed on to you and me and applicable to most manufactured items) raised to 12% from 10% earlier.

b.Service tax rates also increased from 10% to 12%.

c.More important, and this is the double whammy; while currently Service tax is applicable on selected items and most items were excluded from Service tax; going forward Service Tax would be applicable on most items barring 17 major categories of items that would be specified under the negative list…

d.Import duty increased @4% on GOLD…so Gold prices likely to go up…

e.Excise duty increased on big cars; therefore they will become costlier

What? Have you still not had enough? You want more bad news then Google Budget Highlights and you can read the Summaries provided by other people.

6.Any major legislative (tax laws) changes that I need to worry about? For example people were talking about Income Tax Act 1961 being abolished and replaced with DTC (Direct Tax Code).
That is the biggest disappointment from BUDGET 2012. All the hype that FM will finally deliver and bring in the necessary reform by introducing the Direct Tax Code (DTC) by replacing the Income Tax Act 1961 and the Goods & Services Tax (GST) by consolidating various Indirect taxes was a mere hype. The FM , sadly, failed to deliver miserably on this front. Major Reforms? There are no reforms in this budget…
To conclude, our beloved Finance Minister today opened his Budget Speech with this remark,

“I must be cruel to be kind”
Well, what do I say! Our FM is a MAN of his word…He is a thorough gentleman..

Whatever benefits he has given to the common man under Income Tax, he has taken away under Indirect taxes by increasing Service Tax and excise duty rates and so on. But to be fair to our honourable FM, he is currently walking a tight rope after what happened in the Railway Budget. I just hope that all the major reforms that he has postponed like bringing in the DTC and GST, he brings sometimes during the next financial year. If not, join me in praying for this govt.

One Question: What do you do if the FM does not deliver a Budget to your expectations?

ANS.: You tighten your own family budget!!!

HAPPY BUDGETING…


Print pagePDF page

Leave a Reply

Your email address will not be published. Required fields are marked *