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Budget 2013: Personal Tax Impact

Published on Thu, Feb 28,2013 | 19:26, Updated at Thu, Feb 28 at 19:26Source : 

By: Shuddhasattwa Ghosh, Director- Tax and Regulatory Services, PwC

The expectations were high…the opportunities quite a few, but the Finance Minister (FM) decided to stay with his mantra of austerity.  The common man may not be too much enthused by what the proposals have in store for him, but one must credit the FM to present a bold budget even when elections are about an year or so away.

There is quite a few benefits for medium to low income earners and perhaps relying on the canons of taxation of Adam Smith, the FM has chosen to tax the rich more. In my pre budget article in this forum I had mentioned that   the better way of collecting more tax from the high income earners is to add tax to their expenditure instead of bringing in a higher rate of tax at an early level. Happy to see that even FM has the same view and thus there is increase in costs of luxury items like high end imported phones, SUVs, Cigars etc. or eating out.

On this back ground, lets take a quick look at the important proposals as it would affect an individual

Personal tax rates:

Slab rates unchanged, tax credit for low income earners: The FM has left the current tax slabs and tax rates untouched. However, relief has been provided to low income earners by way of a tax credit of Rs. 2,000 for individuals having total income up to Rs. 5 lakhs.

Additional surcharge, increased cost for super rich: An additional surcharge of 10% has been imposed on the high income earners (taxable income in excess of Rs. 1 crore)  making the maximum marginal rate 33.99% for them.


Housing loan interest deductions: The FM has provided restricted relief in the form of additional deduction up to Rs. 1 lakh (over and above the 1.5 lakhs for self occupied property) for individuals:
• who are first home buyers
• loan sanctioned during 1.4.2013 to 31.3.2014 and not exceeding Rs. 25 lakhs
• value of house property not exceeding Rs. 40 lakhs
• deduction available in financial year 2013-14 and if the limit is not exhausted, the balance can be carried forward to the next year.

Eligibility condition for LIC deductions/exemption: The Budget proposes to raise the permissible premium rate at 15%  of the sum assured (earlier 10%) in the case of persons suffering from disability/specified diseases for claiming deduction under the overall cap of Rs. 1 lakh for investments and for claiming exemption for amounts received from life insurance policy. This will be applicable for policies to be issued on or after 1.4.2013.
Donations : 100% deduction will be allowed for donations made to National Children’s Fund from the financial year 2013-14.

Rajiv Gandhi Equity Saving Scheme: The scheme has been liberalized to provide deduction in not just the first year but in 3 consecutive years. Also the gross total income of such individual for claiming such deduction has been increased to Rs. 12 lakh (earlier Rs.10 lakhs).

Securities Transaction Tax (STT) : STT has been reduced in certain categories of transactions in the stock market which will give some relief to the tax payer.

Increase in tax burden:

TDS on Immovable properties: To curb the undervaluation/under reporting of the transactions in immovable properties, the FM has proposed to apply a tax deduction at source(TDS) of 1% on the value of the transfer of immovable property where the consideration exceeds Rs. 50 lakhs (agricultural land will be exempt). However, the corresponding provisions of Section 54 have not been amended. This could lead to an anomaly wherein tax may be required to be deducted even in cases where the capital gains are exempt under Section 54. This will be effective from 1.06.2013.

Provisions have also been included to tax the full value of consideration in case where immovable property has been transferred for inadequate consideration.
Compliance requirements:

• Income-tax return will be considered as a defective tax return if self assessment tax along with applicable interest, if any, is not paid before filing the tax return
• E-filing proposed for wealth tax returns for certain classes of individuals

Over all an austere budget, but a step in the right direction.


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