I-T's a special stimulus: Everyone's getting richer

NEW DELHI: Finance minister Pranab Mukherjee sprang a pleasant surprise on personal income-tax payers, lightening by Rs 20,600 the tax burden for those with an annual income of Rs 5 lakh and a saving of as much as Rs 51,500 for individuals earning Rs 8 lakh.

For individuals hurting from a sharp spike in prices, the concession should compensate for the anticipated increase in the cost of living after he raised the excise duty rate, expanded the ambit of service tax, and increased the prices of petroleum products.

The relief is a direct fallout of a rejig in tax slabs (see chart). Concessions that were available to women and senior citizens will continue. The tax burden for women will be Rs 3,000 lower than for men while that for senior citizens Rs 8,000 less. Income-tax slabs were last changed in 2008-09, and with the latest proposal, the government appears to be making a gradual attempt to align the slabs with those recommended in the draft Direct Taxes Code. Of course, it is a long way before the income-tax slab for the 10% rate is widened to Rs 10 lakh.



“The widening of the slabs is a reward to the missing middle for better compliance,” observed Kaushik Mukherjee, executive director at PricewaterhouseCoopers. He added that the introduction of a simplified Saral form for tax returns along with lower tax liability should improve compliance levels among individuals.

The introduction of infrastructure bonds, with a separate ceiling of Rs 20,000 outside Section 80C deductions, will also increase investment avenues for individuals. As a result, an individual can claim deduction of up to Rs 1.20 lakh from next year instead of Rs 1 lakh now.

The bad news is that the education cess of 3% will continue for another year, at least.