Taxation and how it affects personal finance

Budget 2011-12 has given a marginal benefit on the tax slab for individuals. However, the benefits for very senior citizens are higher.

The expectations that there will be changes in the investment avenues and their slabs, however, have not been met.

Personal income tax slabs

The basic slab for income tax has been proposed to be raised to Rs 1.8 lakh (Rs 180,000) from the current Rs 1.6 lakh (Rs 160,000). This leads to a savings of Rs 2,000 for all tax payers.

Also for senior citizens the slab has been increased from Rs 2.4 lakh (Rs 240,000) to Rs 2.5 lakh (Rs 250,000).

The slab for women has not been changed from the earlier Rs 1.9 lakh (Rs 190,000). Though the finance Minister did not mention this in his Budget Speech, this has been included in the documents submitted along with the budget statement.

For the first time the finance ministry has aligned with other departments and has reduced the age for senior citizens from 65 years to 60 years.

Till now the age for senior citizens has been 60 for all departments (think about railway ticket booking, and senior citizens fixed deposit at banks) except the Income Tax Department.

Also the finance minister has created a new slab for Very Senior Citizens -- for people who are aged eighty years and above. The income tax exemption limit proposed for this group is Rs 5 lakh (Rs 500,000).

Savings instruments: No change

The finance minister has not proposed to change any of the tax savings instruments this year before the DTC gets implemented next year.

The investment in infrastructure bonds upto Rs 20,000 over and above the Rs 1 lakh (Rs 100,000) limit in Section 80C, which was introduced last year, continues for the next year too.

Tax-free bonds

The finance minister has proposed to allow selected government undertakings to borrow up to Rs 30,000 crore (Rs 300 billion) for the development of infrastructure.

These borrowings will be in the form of tax free bonds. Individuals can look to investing in these bonds for tax free returns. The limits set for different government organizations are: Railway Finance Corporation -- Rs 10,000 crore (Rs 100 billion); National Highways Authority of India -- Rs 10,000 crore (Rs 100 billion); HUDCO -- Rs 5,000 crore (Rs 50 billion) and Ports -- Rs 5,000 crore (Rs 50 billion).

Limit for self assessment

For self employed professionals and small business people, the process of doing an audited filing is very time consuming.

The finance minister has recognised this and has extended the limit of self assessment to Rs 60 lakh (Rs 6 million). This will be a big relief to many professionals and proprietorship companies.

To extend the benefit further, the finance minister has proposed to forgo the interest penalty on delayed filing of taxes to an extent of 3%.

Concluding remarks

Though there were many expectations in the personal income tax front from the budget, the finance minister has been docile in not changing much.

There have not been any significant changes either in the personal income tax slabs or in tax saving avenues.

However introduction of the very senior citizen category and reducing the age for the senior citizens' slab are welcome measures.