Sunday, August 30, 2009


This is the best time to plan for reduction of Income tax for the year. Though many people do not want to concede that during last three years income tax on middle class has come down considerably but it is a recorded fact. The recent budget has though not been able to enthuse many investors and corporate entities yet it has brought in certain changes in respect of personal taxes. It has also brought in a new dimension to the New Pension Scheme which is meant now for the common people of India. The impact of these two measures are far reaching. It would be imperative to discuss the implications of these two measures for the benefit of the tax payers and assesses now. From this month tax payers will be able to to pay income tax through ATM s also. The Corporation Bank has started the facility and all other banks would surely follow the system soon.

In what could be a major relief to Income tax payers the Government of India is proposing to impose only 10% tax up to an income of Rs 10 lakh.This is a proposal only for public discourse. Hope the Direct tax code becomes a law replacing IT Act of 1961. In that event middle class will be greatly benefited. This subject need detailed discussion and it would be done in a separate article later.

However it should be noted that Government of India desires that from next April all the persons , who do not have to pay any income tax, shall also have to submit" PAN CARD" to bank or any other authority , in case they have any interest earnings from Fixed Deposit. Till recently no senior citizen, who do not have taxable income, have to submit details of pan card to the bank or any other organization where money is kept in Fixed Deposit.

Despite criticism of opposition parties against low benefit of income tax, in actual practice over last three years personal income tax have come down considerably.During Last year ending March 2008 a person earning above Rs three lakhs annually had paid income tax of around Rs 50,000/ after availing all concessions-. During the current year ending March 2009 he has paid Income tax of around Rs twenty thousand only for the same annual income. In case the person maintains the same level of earning or little more during the year ending March 2010 and handles his savings carefully he might be able to take himself out of the personal Income tax ambit completely. With heavy reduction in tax his real income is going up in 2009-10, despite inflationary effect, for the first time in many years. The most people are not realising the effect due to high cost of commodities.

The recent budget has given good benefit to salaried persons whose annual salary is above Rs10,00,000. Now a days most of the senior executives earn income are around that figure only. Gone were the days when Vice President or a General Manger were getting Rs 50,000/- per month. Now a days an executive directors, General Mangers, Senior general mangers , vice president and Presidents get per month inclusive of Bonus around Rs 85 thousand to Rs one lakh per month and more. From this year they would not have to pay any surcharge on their earned income as such they would get a benefit of around Rs 3 lakh per year.This is a great benefit to the salaried person.

The snior citizens would be also happy for the exemption limit of the taxable income of the senior citizen has been enhanced. Earlier senior citizen did not poay tax if their annual income was within Rs Two lakh twentyfive thousand. per annuam . That means a senior citizen who had a monthly income of Rs Nineteen thousand had to to pay Income tax. Now , a senior citzen shall not be required to pay in come tax even if his earning is Twenty thousand per month or Rs two lakh forty thosuand annually. In case these senior citzen can save around Rs one lakh under 80C then he would not be required to pay income tax even if he earns little over Rs Twentyeight thousand per month. It means some of the retired Judges, retired senior burocrates and retired general Mangers of public sector and private sector undertaking would be out of Incometx ambit as most of the person's pension are around this limit. Naturally senior citizens are happy with the budget.

In many cases where both husband and wife were working and now retired and senior citizen they would have a better financial position than before. A chart is given below to show how new bduget has benefitted the senior citzen.

From the above chart it is apparent that earlier tax liability for senior citizen earning Rs Two lakh forty thousand was Rs 1545 /- annually. Now they will not have to pay any income tax if their income remain same.. In case they earn income amounting to Rs Three Lakh then only income tax would be payable by them amounting to Rs Six thousand one hundred eighty only annually or monthly around five hundred only .

The exemption limit of income tax for ladies has also gone up . A chart of income tax for the laides is also given below ;

From the above chart it is apparent that no lady shall have to pay any income tax, from this year, if her earning is around Rs one lakh ninety thousand per annum or around Rs 17,000 per month. In case they can save money under 80 c they would not be required to pay income tax even if they earn Two lakh ninety thousand per annum or Rs Twenty four thousand per month. This would mean any Government officials and private and public sector executives of middle level would hardly be required to pay any taxes. The new SDC, Police officers, Extra Assistance commissioners, Executive engineers drawing around Rs Twenty five thousand per month would not be required to pay any income tax if saving is planned properly under 80 c.

The budget has also given exemption to common male earning members of the society. The chart given below would show how the budget would impact the pocket of the common male tax payers.

From the above chart it is now apparent that any male income tax payers would have to pay no income tax from now onward till his earning exceeds Rs 1 lakh sixty thousand annually or Rs 13 thousand per month. In case, the same person can save money under section 80 c of IT Act they will not have to pay any taxes even if they earn Rs Two lakh sixty thousand annually or little above Rs twenty one thousand per month..

It is now apparent that if habit of saving is developed then income tax benefit is always going to be higher. I strongly recommend all young employees to save money under NPS for that would give them best benefit in future. We don't have to think only of today. If proper saving could be organized the future would be also brighter for the younger generation.The new Pension Scheme from now onward would be Exempt from IT provided the money taken out of the pension fund is deployed in annuity. This is a good concession which most of the people have forgotten to notice.
I however don't recommend for senior citizen any contribution to NPS. But in case they have still an operative PPF account then they should continue contributing there for that would give them the best benefit during their still older age. Now a days people generally live beyond eighty five years. They should provide for those age now for medical aid has become costly. The modern health scientists have predicted that human mortality in India would further decrease and most of the persons would now live well beyond Ninty by 2030. The health care would be vital during those years and saving for a healthy body, mind and soul would be most imperative then. If Direct Tax Code is implemented in due course of time perhaps the present finance Minister would get greatest blessings from Middle class.

1 comment:

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