Top 10 announcements of union budget for 2012-13

After a long awaiting, the Union Budget of India has been delivered by our finance minister Pranab Mukarji. There is mixed opinion on this budget, but seeing the opinion from the experts, the budget mainly lack of the focus on India’s future growth. Also the expectation was huge for this budget because India’s financial deficit is piling up and our Govt. is under a pressure to reduce the deficit to avoid getting more loans from the World Bank.

We have already more loans in the foreign bank which would start bringing the economy down if we are not reducing with proper plan. It is very clear that budget don’t have the focus for our economy growth. Also it disappointed the salaried segment with just Rs. 20000 increase in the tax exemption which they expected up to Rs. 300000 from the current slag of Rs. 180000. This article lists down the key changes in the budget which would affect the individual’s life.

1. Changes in Tax Slab

Bad news for women, there is no special tax slab for the women working group. They will be fall under the common tax slab which is applicable for the men. The previous tax slab for general group is Rs. 180000. It has been increased to Rs. 200000 for Nil tax. Those who are under the age 60 would fall under the general tax slab. Details of the each tax slab as under:

General Tax Slab

• Up to Rs. 2 lacs – No Tax
• Rs 2 lacs to Rs. Rs. 5 lacs – 10% Tax
• Rs 5 lacs to Rs. Rs. 10 lacs – 20% Tax
• Above Rs. 10 lacs – 30% Tax

Senior Citizen Tax Slab (Above 60 Years)

• Up to Rs. 2.5 lacs – No Tax
• Rs 2.5 lacs to Rs. Rs. 5 lacs – 10% Tax
• Rs 5 lacs to Rs. Rs. 10 lacs – 20% Tax
• Above Rs. 10 lacs – 30% Tax

Very Senior Citizen Tax Slab (Above 80 Years)

• Up to Rs. 5 lacs – No Tax
• Rs 5 lacs to Rs. Rs. 10 lacs – 20% Tax
• Above Rs. 10 lacs – 30% Tax

2. EPF Interest Rates Fetches only 8.25%

• Update: EPF interest rates to get 8.5% for FY 2012-13

The current interest rates for the EPF account is 9.5% p.a. It gives the good return for the salaried employees compared to any other debt instruments like Fixed Deposit or Public Provident Fund (PPF). But, for the year 2011-12, the EPF organization would give you only 8.25%. It is announced by the finance minister in the Budget. This has been due to the lack of fund with the EPF organization. It is big below to the salaried segment, when the inflation is peeking up, reducing the interest rates for common man’s scheme is totally disappointing.

3. Tax exemptions on Saving bank interest upto Rs 10,000

It is not having any magnificent impact on your income. Till now the interest earned on your savings bank account is taxable. In this budget, if you are earning more than Rs. 10000 on your savings bank account then only you need to pay the tax. Note that it is only for the savings bank account, Fixed Deposits are  still taxable.

The savings bank account includes the banks, post office and any other banks offering the savings bank facilities. But, only very few people pay the tax for the savings bank account and also the interest income earned on the savings bank account would be very less. We never keep more money into the savings bank account.

4. Life Insurance Tax Exemption only if 10% on Sum Insured

This is new clause introduced in this budget for the tax exemption for the Life Insurance premium. Till now if you are buying a life insurance, if the premium amount is under 20% of the sum insured, then it is eligible for the tax exemption. But, with the new proposal it is eligible only if the yearly premium is less than 10% of the sub assured. (ie.) If you are buying an insurance with the sum assured value of Rs. 500000, If the yearly premium is under Rs. 50000 (10% of Rs. 5 lacs) then only it is eligible for the tax exemption. Note that, it is for the policies which is bought only after the April 2012. The existing policy holders need not worry.

5. Changes on Service Tax

The important part of the budget, service tax has been increased from the existing 10% to 12%. This would empty your pocket each time you are paying the bills your shopping. (ie.) If you are paying the telephone bill, till now you would pay 10% extra on the bill as the service tax. From next month on wards, your bill will have 2% extra and it will be charged 12% as the service tax. It is another big below to the common man who would suffer most from this change.

Because the service tax is applicable to almost anything we purchase from the shop which is billed. Even we are paying the service tax for the health insurance premiums. You will have to pay more from the next installments. So, this budget is going to be the negative return for the common man.

6. No Tax Benefits for Infrastructure Bonds

In two years back, under section 80c, additional Rs. 20000 exemption for the investment on infrastructure bonds have been introduced. It helps the infra companies to get more investment from the public to boost their operations. This scheme has been removed from this budget.

7. Pay 1% of TDS for the property sale

It is a good move if it is implemented properly. If you are selling your residential plot or house or flat, if the selling price is more than Rs. 50 lacs, you must pay the compulsory 1% TDS on the profit from the sale. It will help the Govt. to gain more income from this tax announcement since India’s real estate is always most loved investment options. But, the issue is that even if you are not liable to pay after the profit (Read Capital Gains Profit and Tax Exemption), the TDS @ 1% is compulsory. If you are not liable to pay the tax, you have to file the IT return and get the refund.

8. Health check-ups upto Rs 5,000 under section 80D

A new deduction is included in the medical insurance , that is “preventive health checkup”. You can claim up to Rs. 5000 under this category. Till now you can claim Rs. 15000 for the health insurance premium paid you, spouse and kid. It is another category in the same section 80D and the amount is included in the Rs. 15000 not the additional one.

9. Rajiv Gandhi Equity Saving Scheme

Another equity related scheme is introduced in this budget for the small investors. As of now, if you are investing directly investing in the equity and sell after one year, it is fully tax exempt. In this scheme, a new investor can claim the 50% of the equity investment subject to the maximum of Rs. 50000 as the tax exemption. The details of the scheme is not released and it would be available to the public very soon. It is very early to tell anything about this scheme, we have to wait and see how it performs in the future. Also, what is the necessity to name this scheme as “Rajiv Gandhi“?. The following are the points on this scheme.

• The lock in period for the investment is 3 years
• The 50% of the investment or maximum of Rs. 50000 is eligible for the tax exemption.
• You are eligible for this scheme, only if your total income is less than Rs. 10 lacs.

10. Changes on Securities Transaction Tax (STT)

If you are making any transaction to buy or sell equities, you have to pay 1.25% as the Securities Transaction Tax (STT). This has been reduced to the 1.0% from this budget. It means when you are doing the equity transactions, it costs you less than the earlier transactions. It is very useful for the regular investor on equities.

Summary

The above lists are the most notable changes in the budget and would impact the individual’s earnings. I have not discussed anything on the corporate changes. In the overall, the feedback of this budget is negative (you can see the poll conducted in our site!!!). It is not focused and missed many of the expectations from the business men and common man. This could be because the general elections far away (year 2014) from now. Finance Minister would have postponed many things for the next year’s budget. But, national interest has to be priority if we need real growth on our country. We have to wait and see how the Gross Domestic Product (GDP) and financial deficit would affect on these changes.

What is your take on this budget? Are you happy with the changes or expected some specific additions?. Please share your thoughts in the comments section.