In a sweeping move to make the income tax regime more transparent and raise the purchasing power of the urban middle class, Finance Minister Pranab Mukherjee proposed a perceptibly lower tax rates.
The Budget 2010-11 sought to rejig the tax slabs in a manner that could result in a maximum tax benefit of Rs 51,500 a year, or Rs 4,291 a month, to individual tax payers.
While the exemption limits for working men, women and senior citizens have been left at the existing levels, the tax rate for income between Rs 1.6 lakh and Rs 5 lakh has been fixed at 10 per cent. The rate for the Rs 5-8 lakh slab is fixed at 20 per cent, while income above Rs 8 lakh will be taxed at 30 per cent.
Thus, the FM has halved the rate for the Rs 3-5 lakh a year, while reducing to one-third the rate payable on incomes between Rs 5 lakh and Rs 8 lakh.
This is the second year in a row that the FM has taken measures to tweak the tax structure to offer a higher take-home to salaried individuals. And by this, Mukherjee announced, he was paving the way for the Direct Tax Code to be implemented next year.
Mukherjee also said the IT department was now ready to notify a simple two-page Saral-II form for salaried individuals. This will be applicable for the 2011-12 assessment year. Taxpayers can use it while filing returns in July 2011.
“We were waiting for this… currently, individuals with other sources of income needs to fill a 6 to 8-page form,” said Surya Bhatia, a Delhi-based chartered accountant.
In Budget 2009-10, the FM increased the exemption limit for all individuals from Rs 1.5 lakh to Rs 1.6 lakh and withdrew the 10 per cent surcharge on the personal income tax for individuals with net taxable income of more than Rs 10 lakh.
But the tax relief announced this time can be compared only to the radical slashing of tax rates that P. Chidambaram introduced in 1997, prompting many experts to term it as the ‘Dream Budget’.
With a higher net income, Mukherjee hopes, individuals will save, invest or spend more. “There will be more in hand even if the spending goes up on account of price rise in goods and fuel,” said Bhatia.
A Rs 4,000-a-month higher income will also increase the home loan limit for an individual roughly by Rs 4 lakh.