The budget has left personal income tax slabs unchanged, but finance minister P Chidambaram announced a minor relief for those at the lower end of the taxable bracket — a tax credit of Rs. 2,000 for those with annual incomes of up to Rs. 500,000.
What this means is that if you are a salaried person earning between Rs. 200,000 and 500,000 per year you get a deduction of Rs. 2,000 from the tax due.
"Assuming an inflation rate of 10% and a notional rise in the threshold exemption limit from Rs. 2 lakh to 2.2 lakh, I propose to provide a tax credit of Rs. 2,000 to every person up to R5 lakh income," said Chidambaram.
The proposal will benefit 18 million tax payers, leading to a revenue sacrifice of Rs. 3,600 crore for the government.
"The current slabs were introduced only last year, hence I'm afraid, there is no case to revise either the slabs or the rates," said Chidambaram, disappointing those expecting relief on that front.
The minister defended his action, saying even a moderate increase in the exemption threshold would lead to the exit of hundreds of thousands of taxpayers from the tax net and erode the tax base.
"Assuming an inflation rate of 10% and a notional rise in the threshold exemption limit from Rs. 200,000 to Rs. 220,000, I propose to provide a tax credit of Rs. 2000 to every person up to Rs. 500,000 income," the minister said.
Taxation experts said those eligible will be save up to Rs. 2,060 per year in taxes if they earn up to Rs. 500,000. Those who earn above this limit will not benefit.
At present, incomes from Rs. 2 to 5 lakh per annum attract a tax at 10%, from Rs. 5 to 10 lakh at 20% and those above 10 lakh at 30%.
The government also left unchanged the tax slabs for senior citizens.
There is no tax up to Rs. 2.5 lakh per annum for those in the 60-80 age bracket.There is no tax on annual incomes of up to Rs. 5 lakh for senior citizens above the age of 80.
"The finance minister has not tinkered with the existing tax slabs and rates applicable to individuals in the current year budget proposals. The minister has proposed a tax sop of Rs. 2,000 to individuals with annual total income up to Rs. 5 lakhs," said G Chandrashekhar, director, Deloitte.