Budget 2012- A mixed bag!
Friday, 16 March 2012 14:05
Today was the big day everyone from salaried individuals to business owners & corporates was waiting for- the annual budget of India! Budgets usually swing from being reformist to being populist. This budget was neither. It was a mixed bag of positives & negatives. We at Fpguru.com list out the major highlights of the budget. As usual our focus will be on personal finance aspect of the announcements.
Minimum Exemption Limit for Individuals increased.
The minimum exemption limit has been increased from Rs 1,80,000/- to Rs 2,00,000/-. This will result in a tax saving of Rs 2,000/- for an individual. The minimum exemption limit will be the same for both male & female. This is a change from previous years.
Individual tax rates widened
Tax slabs have been widened. This will yield additional tax savings for individuals especially those earning above Rs 5 lacs p.a. The new slab rate is as follows –
0 – Rs 2 lacs – NIL
Rs 2 lacs – Rs 5 lacs – 10%
Rs 5 lacs – Rs 10 lacs – 20%
Above Rs 10 lacs – 30%
No tax on interest earned from Savings Bank
Interest earned on your savings bank account was one head of income which individuals would tend to forget in their tax returns. This could always lead to issues later. The Finance Minister has now allowed tax deduction on interest earned from savings account upto Rs 10,000/-. This means that if you have kept Rs 2,50,000/- in a Savings bank account giving interest 4% p.a., the interest earned i.e. Rs 10,000/- will not be taxed.
Exemption for Medical Health checkup.
Go ahead, take that diagnostic health checkup in that renowned hospital. The Finance minister has proposed to give an exemption for medical expenses incurred on it. The limit is kept at Rs 5,000/-. This is a great initiative by the Government.
Life Insurance Proceeds Tax exemption rule changed
Previously if you bought a Life Insurance plan, the proceeds from it would be tax-free if the Premium was less than 20 times the Sum Assured. Thus if you bought an insurance plan of Sum Assured Rs 1 lacs, the maximum premium you could pay would be Rs 20,000/-. However the limit has now changed to premium being less than 10 times the Sum Assured. Thus no the premium cannot be more than Rs 10,000/- for a one lac plan. The Government in it's own is pushing term insurance plans as these are the cheapest & most efficient way to buy insurance.
Rajiv Gandhi Equity Savings Scheme introduced
If your annual income is less than Rs 10 lacs, you can get tax deductions on your equity investments. 50% of your invested amount will be allowed as a tax deduction under this scheme. Maximum deduction allowed is Rs 50,000/-. The investment will be locked-in for 3 years. We should see more savings channelizing into equity with this.
STT reduced
Securities Transaction Tax, i.e. the tax on transactions in the stock market has been reduced to 0.1% from 0.125% on delivery transactions. This is another plus for the stock markets.
Duties increased
Import duty on Gold has been increased. We will see more interest in Gold ETF investment due to this. Duties on luxury items too have been increased. Large cars, gold products, cigarattes will cost more. Some duties however have been reduced. Mobile phones , branded silver jewellery will cost less.
Service Tax rate increased
Service Tax rate has been increased from 10% to 12%. This is something which will affect everyone. Services will cost more. In effect savings made on income will be used to pay more service tax!
The Finance Minister Mr. Pranab Mukherjee has also said that taxation of unexplained money, credits, investments, expenditures etc, will be at the highest rate of 30%, here the slab of income will not be considered.
Though the DTC (Direct Tax Code- reform of existing direct tax structure) has not been passed, it has been proposed that the same will be passed at the earliest. Goods & Service Tax, another reform on indirect tax structure too has not been passed but a tentative deadline of August 2012 has been proposed. Corporate Tax rate has been left unchanged.
To sum up though you may save on income tax, your expenses will go up due to increase in service tax. Gold imports will fall which will help the forex reserves of the country. Gold ETF’s will look more attractive to investors. The Equity savings scheme will help channelize investments into equity markets. A mixed bag in all ways!
Macro changes will keep occurring in the economy & is beyond our control, thus it is essential that every individual gets financially literate & chalk out a map for their financial freedom. We at Fpguru.com suggest you to always keep this in mind.
By Jai Adiani.
The writer is Founder of FpGuru.com.
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