Budget 2011: A benefit-efficiency tie

Tied matches seem to be the flavour of the season. After Sunday’s cliffhanger with England, it was the finance minister’s turn to stage one on Monday.

At the end of the budget speech, there seemed to be a sort of a ‘tie’ between the benefit one gets directly into his bank account in terms of direct saving due to a reduction in tax liability and the benefit that a strong and efficient tax system provides in the long term, in the form of speedy and inclusive growth.

The finance minister has proposed only a few changes in the existing personal tax regime. With Direct Taxes Code (DTC) set to be implemented with effect from April 1, 2012, the focus is on moderation of tax rates and simplified payment and collection mechanism for the tax payer and the revenue, rather than on introducing sweeping changes.

Minor reliefs have been provided to ‘individuals’ in the form of a hike in the basic exemption limit, reduction in the age for qualifying as ‘senior citizens’ and introduction of a new category of tax slabs for ‘very senior citizens’. These proposals have been discussed below:

Change in tax rates
Some relief has been provided to individuals with a minor hike in the basic exemption limit from Rs160,000 to Rs180,000, resulting in a tax saving of Rs2,000 in the hands of the individuals.

Senior citizens would benefit the most from this budget. The basic exemption limit applicable to senior citizens has been increased slightly from Rs240,000 to Rs250,000, while the minimum age for qualifying as ‘senior citizen’ has been reduced from 65 years to 60.

Also, a new tax slab for individuals above 80 years or more (very senior citizens) has been introduced.

The mantra of the finance minister seems to be simpler administration and improved governance. Many IT initiatives are being planned to provide enhanced taxpayer services. Such initiatives will definitely make life simpler for taxpayers and provide the necessary infrastructure for speedy growth.

Given that the objective of the finance minister is to implement DTC in April 2012, the tied-match budget would be a step in the right direction.

The discussion on whether we could have done better or whether we could have saved the match would continue.

Amarpal Chadha is associate director,Ernst & Young