Budget 2012: Minor tweaks; it’s discretion over valour

This Budget was a feather in the cap of the UPA government, though some experts have called it a non event or an anticlimax.

This is because, after the recent assembly election debacle, one almost expected the finance minister to use the budget platform to dole out huge subsidies and other fiscal prolificacies in a bid to woo back the electorate. That he refrained from doing so is in itself the best news in Budget 2012. Kudos to the government for this mature stand.

Key personal tax proposals of the finance minister include:
Marginal relaxations in the tax slabs

A small lip service increase in tax slabs aligning them
to those specified in the proposed Direct Taxes Code (DTC) was carried out. The new slabs are:

Earlier, anyone earning an income of Rs10 lakh would have paid a tax of Rs1.52 lakh. Now, with the revised slabs, the tax outgo works out to Rs1.30 lakh - a net benefit of Rs22,000.

Tax deduction at source on sale of immovable property
This was perhaps the most significant step taken by the Budget.
With effect from October 1, 2012, it will be obligatory for the buyer of a property at the time of making payment to the seller, to deduct tax at source @ 1% of such sum, if the sale consideration exceeds (a) Rs50 lakh where the property is situated in urban areas (b) Rs25 lakh in other cases.
There will be no registration of the sale of property unless the buyer furnishes proof of deduction and payment of TDS.
Reporting of foreign assets through return of income
Currently, no income tax return needs to be filed if the income of the taxpayer is below the basic threshold. Budget 2012 proposes to amend this provision by providing that filing of the tax return would be compulsory where the resident individual has any asset or bank account located outside India. Particularly noteworthy is the fact that this amendment is applicable retrospectively for FY 11-12 i.e. it is applicable for the return filing of FY11-12.
Deduction in respect of interest on deposits in savings accounts
Savings bank interest up to Rs10,000 would be exempted from tax in the case of an individual taxpayer and HUF. Interest on fixed deposits will not be covered.

Service tax
In the third stimulus package unveiled in February 2008, the service tax rate was brought down from 12% to 10%. Budget 2012 proposes to reinstate the same to the earlier 12%.

Service tax, though an indirect tax, directly adds to our cost of living. Expenses on almost all amenities such as telephones, electricity, restaurants, transport, credit cards etc., are subject to service tax. As this service tax is passed on by the service provider, in effect, it is the common man who bears it. Any increase therein would further add to the burden of the aam aadmi - something the government could have avoided especially in the current environment where general price levels remain elevated.

To sum
The finance minister also said a new scheme called Rajiv Gandhi Equity Savings Scheme is to be introduced where retail investors having income below Rs10 lakh would get a 50% tax deduction on Rs50,000 invested directly in equities. A lock-in period of three years is proposed on such investment. However, so far, this is just a budget announcement — no details have been announced yet.

Sandeep Shanbhag Director, Wonderland Consultants