Know the tax benefit for different income levels

Know the tax benefit for different income levels

Last Updated: Mon, Mar 01, 2010 06:45 hrs

We had mentioned in an earlier column that with the new Direct Tax Code with its sweeping changes being made applicable from next year, one really could not see the government ringing in big ticket changes on the taxation front for all of just one year in Budget 2010. The Finance Minister’s budget speech removed whatever little doubt that remained.

A quick take on Budget 2010

As it transpires, Budget 2010 holds very little for the common man except for relaxation in tax slabs. The following are key highlights.

The proposed new rates are as follows:


Tax Rate

Up to Rs. 1,60,000


Rs. 1,60,001 to Rs. 5,00,000


Rs. 5,00,001 to Rs. 8,00,000


Above Rs. 8,00,000


The enhanced basic exemption limits for ladies of Rs. 1,90,000 and for senior citizens of Rs. 2,40,000 remain unchanged.

The following table showcases the tax benefit for different income levels.


Income Level

Old Slabs

New Slabs




























Senior Citizens 













Tax relaxations apply only to higher income group

As can be seen from the above table, everyone who earns an income of above Rs. 8 lakh would pay a lower tax of Rs. 51,500. However, what about the lower income group? Those who earn a taxable income of up to Rs. 3,00,000 have been totally ignored! They stand to gain nothing. Earlier they paid a tax of 10% on income above Rs. 1.60 lakh and with the revised slabs too, they continue to do so!

How the Budget 2010 benefits you

Saral II on the anvil

To call the new income tax return forms (that replaced the erstwhile Saral) complicated would be an understatement. However soon, taxpayers (at least the salaried class) can look forward to a two page simple and user friendly tax return form. Since this is just an announcement by the FM in his speech, when exactly will these forms be issued and to which category of taxpayers (apart from the salaried) is yet not clear. The income tax department should be coming out with a notification in this regard.

Sector impact: Budget neutral on petrochemical industry

New Tax Deduction for investment in infrastructure bonds

The good news is that Budget 2010 has proposed a new Sec. 80CCF that will offer a deduction of up to Rs. 20,000 next year onwards for investment made in infrastructure bonds. The still better news is that this Rs. 20,000 is over and above the Rs. 1,00,000 Sec. 80C limit. The details as to the term of these bonds, the lock-in period, the issuing institutions etc. are yet to come out.

NPS (New Pension Scheme)

The NPS has not taken off as expected. Now the Government proposes to contribute Rs.1,000 per year to each NPS account opened in the year 2010-11. This initiative, "Swavalamban" will be available for persons who join NPS, with a minimum contribution of Rs.1,000 and a maximum contribution of Rs.12,000 per annum during the financial year 2010-11.

No need to continue with concessions on fuel: FM

Disallowance of expenditure on account of non-compliance with TDS provisions

A. The existing provisions of section 40(a)(ia) of Income-tax Act provide for the disallowance of expenditure like interest, commission, brokerage, professional fees, etc. if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. It is proposed that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income Note that this amendment is proposed to take effect retrospectively from 1st April, 2010.

Tax Audit limits increased

Under the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in business exceed Rs. 40 lakh. Similarly, a person carrying on a profession is required to get his accounts audited if the gross receipts in profession exceed Rs. 10 lakh. These limits have been increased to Rs. 60 lakh and Rs. 15 lakh respectively.

Change in gift tax provisions

Under the existing provisions of section 56(2)(vii), any sum of money or any property in kind which is received without consideration or for inadequate consideration (in excess of Rs. 50,000) is taxable in the hands of the recipient. Of course, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision. Nonetheless this law is only applicable to an individual or an HUF.

Therefore, transfer of shares of a company to a firm or a company, instead of an individual or an HUF, without consideration or at an inadequate consideration escapes the tax net completely. In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, it is proposed to amend section 56 to also include within its ambit transactions undertaken in shares of a company either for inadequate consideration or without consideration where the recipient is a firm or a company

Also, in several cases of immovable property transactions, there is a time gap between the booking of a property and the receipt of such property on registration, which results in a taxable differential. It is, therefore, proposed that Sec. 56 will only apply if the immovable property is received without any consideration and to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property.

To Sum

As you can see, for the average investor, Budget 2010 was largely a non-event. Even the relaxations in personal income taxes pale when seen in light of what is proposed next year onwards in terms of the Direct Tax Code (DTC). For example, under the DTC, an income up to as much as Rs. 10 lakh will be taxed only @10%, income between Rs. 10 lakh and Rs. 25 lakh will be taxed @20% and the 30% rate would only be applicable to incomes above Rs. 30 lakh.

Speaking of which, it was expected that Budget 2010 may create some basic groundwork for the introduction of the DTC. Its been a while since the DTC has been put in the public domain and various stakeholders have already indicated their feedback to the government. However, there is no word on any developments on this front. There have been representations that the government should re-look at proposed provisions in the DTC such as taxing NRIs at a flat rate without offering the basic exemption limit, taxing all capital gains without any exception, scrapping of Sec. 54EC bonds, canceling the interest deduction on home loans, applying EET on existing investments etc. However, Budget 2010 chose to remain silent. It is hoped that there is some intimation in this regard from the government during the year. Watch this space for any developments.

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