Home »  Money

De-jargonising Income Tax: What to look for in Budget 2014

Friday, 4 July 2014 - 10:21am IST | Agency: dna webdesk
  • Jaitley is expected to raise the minimum tax bracket which currently is at Rs 2 lakh for ordinary citizens and Rs 2.5 lakh for senior citizens.

Whether it be filing your IT returns or figuring out why your actual pay cheque figure looks abnormally lower than what your offer letter says: Tax is not something that is easy to understand. Every year when the Union Budget is read out, it is the personal income tax that garners the greatest attentions from the Indian middle class: those who earn enough to be eligible to pay taxes.

First things first. Taxes are not always bad. The Budget that the government presents in India  the expected income and expenditure amount for the government. So there are both plan and non-plan expenditure. The plan expenditure would include the the money spent by the government on social security schemes like NREGA, rural development, education, health etc, which are decided along with the help of different ministries and the Planning Commission. Non plan expenditure are the ones spent on subsidies, interest payments, salaries of government employees etc that help in keeping the government machinery functional.

When a Budget is presented the government calculates what it expects in terms of revenue and expenditure in the next year and accordingly make its financial statement. The actual expenditure and revenue come only next year. So first things first, we have to pay taxes if we require the street lights to be on, LPG cylinder prices to be low, extra rakes in trains or even a better highway to be constructed.

We will speak of corporate taxes separately in another article and restrict ourselves here just to the taxes that affect you personally.

Now taxes are of two kinds broadly: Direct and Indirect.
Direct taxes are those levied directly on us: income tax or taxes on our salaries or investments. Indirect taxes are those levied on others paid by us: for example, sale tax, which the government levies on a company and the burden is borne by us.

It is the direct tax that is less complex and more important to understand for its obvious implications on our wallets. So here are what you should be watching out for in the Budget.

1. Income tax slabs and rates: The Government announces every year the tax slabs and the rates of taxation. There is nothing that says the government cannot change taxation rules mid-year but governments have kept themselves away from changing what it announces in the Budget. Chidambaram had kept the slabs and rates untouched in 2013-14 except for offering a small relief to tax payers in the income bracket between Rs 2 lakh to Rs 5 lakh.

Jaitley is expected to raise the minimum tax bracket which currently is at Rs 2 lakh for ordinary citizens and Rs 2.5 lakh for senior citizens. Keeping inflation and increasing pressure on household finances in mind, Jaitley might move up these brackets to provide relief to more tax payers. 

2. Exemption under 80CC: The government gives you tax exemption over and above the basic exemption limits if you invest it in employee provident fund, public provdient fund, education loan, house rent etc. The ordinary citizen who sees half of his salary going away on the first day of the month to pay off home or education loans, rent, insurances etc, wants greater relief from taxation. The limit of exemption upto Rs 1 lakh was fed almost a decade back and it is time the government thinks of changing it.

3. Changes in other exemptions: The government also provides other exemptions like medical (Rs 800 per month) or travel allowances (rs 15,00 per year). However, it is difficult to manage the expenditure with rising fuel and healthcare costs. It is expected the government will increase the exemption thresholds commensurate with the expenditures. The limit on exemption over home loan interest which stands at Rs 1.5 lakh for the year also might go up: so keep a tab.

The savings rate in India is at a nine year low of 30.1 % of GDP in 2012-13 from more than 38 % in 2008. So with low economic growth, savings will have to be boosted by the government in hope of channelising them into investment to revive the slowing economy. The Budget is just 5 days away, and the Indian middle class can only hope for some relief in increasing financial constraints. 




Jump to comments