Budget 2011: There’s little for salaried

The finance minister started announcing his tax proposals by saying: “In the formulation of these proposals, my priorities are directed towards making taxes moderate, payments simple for the taxpayer and collection of taxes easy for the tax collector”.

That, however, is not reflected in this year’s budget. At least not for the individual tax payers. One of the reasons for this may be the implementation of Direct Taxes Code (DTC) from next year.

Since major changes and rationalisation of slabs are expected to happen in DTC, there has not been any tweaking with the tax rates this year. The basic exemption limit has been moderately hiked from existing Rs160,000 for males to Rs180,000.

This will lead to a nominal tax saving of Rs2,060 for male individuals. However, women are not so lucky with nothing in store for them this time.

Investments in the new pension scheme (NPS) were made tax-free couple of years back when it was brought under the investment limits of Rs100,000 under Section 80C. Such investments up to 10% of the employee’s salary were included for calculation of Rs100,000 limit.

This amount can be either by employee investing himself or employer contributing to NPS on employee’s behalf.  Now, the employer’s contribution is proposed to be removed from Rs100,000 limit. This means that amount invested by employer in NPS on behalf an employee, subject to the cap of 10% of the salary, will be allowed as deduction over and above Rs1,00,000 limits under Section 80C. 

Further such employer’s contributions will also be allowed as business expenditure for the companies.  This will encourage investments in New Pension Scheme.

The benefit under Section 80CCF of Rs20,000 invested in infrastructure bonds is extended for additional one year.

Another good change but with limited implication is doing away with the requirement of filing of income tax return in case the tax has been deducted by
employer.

However, this may not provide any substantial benefit since almost all individuals have other sources of income such as bank interest and investment profit. 

In his post-budget press conference, CBDT chairman Sudhir Chandra hinted that salaried individuals having income up to Rs5 lakh need not file the return. If the individual wishes to opt for this, he needs to disclose his other income such as interest, etc to the employer for tax deduction. However, in case individuals have any other sources of income such as capital gains or house property income, he needs to file his return with the tax authorities. More clarity on this is expected to emerge in coming months.

Vishal Shah is a chartered accountant and blogs at http://bachhat.blogspot.com