Budget 2012 - India

Pranab Mukherjee, the Finance Minister of India, presented the budget 2012 on March 16th, 2012. The main highlights of the budget for the common man are as follows:

• Implementation of DTC deferred.
• Income Tax Sops on the equity investments under Rajiv Gandhi Equity savings scheme on 50K for the individuals having income below Rs 10 lakh.
• Income Tax exemption limit hiked to Rs 2 lakh from the existing Rs 1.8 lakh.  
• Income from Rs 2 lakh to Rs 5 lakh to be taxed at 10 per cent, from Rs 5 lakh to Rs 10 lakh at 20%.
• Income above Rs 10 lakh to taxed at 30%. 
• Health insurance deduction up to Rs 5,000 for preventive health checkup within the existing limit of Rs. 15,000/-. 
• Senior citizens to be exempt from advance tax payments.
• STT (Security Transaction Tax) cut from 0.125% to 0.1%.
• Interest income from banks will be tax-free up to Rs 10,000.
• Service tax net widened; to include most sectors but Govt services, education, entertainment, public transport exempted from service tax.
• Propose to hike service tax rate from 10% to 12%.
• Sale of residential property exempted from capital gains if invested in equity or equipment of an SME. 
• Large cars duty raised from 22% to 24%.
• Solar power lamps, LED bulbs to become cheaper.
• Iodised salt, match-boxes, soya products to become cheaper.
• Big cars, ACs, refrigerators, phone bills, restaurant bills set to become more expensive.
• LCD, LED TVs to become cheaper.
• Cigarettes, gold, diamonds to cost more.

Reserve Bank of India to issue Rs 150 coin

On the occasion of 150th anniversary year of Gurudev Rabindranath Tagore, Reserve bank of India has issued currency coins of Rs. 150. The 35 grams 150 rupees coin is 40 mm in diameter. Now, to mark the number of years of taxation in India, Finance Minister Pranab Mukherjee will issue special coins of Rs 150 before his Budget speech of 2011. These special coins will be made of an alloy of Silver, Copper, Nickel and Zinc. The new coin is expected to have an international design with 'Satyameva Jayate' and 'India' on the front side while a portrait of 'Chanakya and lotus with honeybee' on the reverse side.

Along with Rs 150 coin, RBI is expected to issue Rs 100 coin in memory of the Commonwealth Games and Rs 75 coin will also be issued on the occasion of 75 years of RBI. This is the first time that Government of India will issue coins of higher denomination.

Direct Tax Code Updates for 2012

Direct Tax Code (DTC) was much awaited since Government announced it last year in 2009. DTC was supposed to be applicable from the financial year of 2011, but as a major update, it has been postponed for another financial year, i.e. 2012. So, DTC will now be applicable only from year 2012.

Finance Minister, Pranab Mukherjee has tabled the draft of Direct Tax Code on Monday, 30th August 2010 in Parliament.

Major highlights and changes to check in DTC are:

• Postponed DTC to be applicable from April 1, 2012
• Income Tax slabs has been changed and raised giving some relief to tax payers
• Exemption of Rs 100,000/- under 80C is limited to PF,  Pension and Annuity Funds
• Additional deduction of Rs. 50,000/- provided
• No change in long term capital gain tax for listed securities and equity mutual funds
• Change in formula for short term capital gain tax
• STT to remain there
• Corporate Tax is maintained at 30%
• MAT is increased to 20%
• 5% Tax on Maturity of Mutual Funds and equity oriented Life Insurance
• 5% Tax on Dividend Distribution (DDT) for equity mutual funds
• Tax break for SEZs

The above mentioned updates for new tax code may differ in the final draft as it has now been postponed by one year. This is actually the third revised draft after being first proposed by the cabinet.


Revised Tax Slabs:
0 - 2 lacs : No Tax
2 - 5 lacs : 10%
5 - 10 lacs : 20%
Above 10 lacs : 30%

Additional 50,000/- is for health insurance, pure life insurance, education and any medi-claim type of policy.

If there will be some changes or modifications required in the above points, they will be updated. Still there are few points need some clarification. Nothing is clear about LTA whether it will become Taxable or remain Non-Taxable.
As an update, Finance Ministry has cleared that individuals will continue to enjoy the benefits of LTA as before. So, nothing much really changed for individual tax payers except the changes done for Sec 80C.

ELSS (Tax Saving Mutual Funds), ULIPs, Tax Saving FDs will not come under section 80C from April 2012.

Updates on Direct Tax Code for 2011 by Pranab Mukherjee

Earlier in 2009, Indian Government proposed a new tax code for year 2011. In this proposed tax code, government indicated radical tax reforms to simplify taxation. To make it robust and accepted by citizens, this draft was open for public suggestions. Now on June 15th 2010, government released its revised version of proposed Direct Tax Code (DTC).

The major change that came is that tax on provident fund and life insurance products are to be treated on Exempt-Exempt-Exempt (EEE) basis instead of EET (Exempt-Exempt-Tax). Another major decision is for ULIPs. From the year 2011, new ULIPs will not have EEE benefit but existing ULIPs will continue to get EEE benefit. Further, there will be no capital gains on savings schemes.

Tax Saving Mutual Funds

Mutual Funds are considered to be the best investment option with moderate risk. Though, Mutual Funds are linked with market, but they are managed by professional fund managers and fund-houses. You also get the option to invest your money in balanced or pure-equity funds. You can get really good returns from MFs, if you invest for a minimum period of 3-5 years.

As Mutual funds are so popular, special funds were introduced for the investors to save income tax. These funds are called as tax-saving mutual funds and popularly known as ELSS (Equity Linked Savings Scheme). ELSS has a lock-in period of three years, so when you invest in these funds, your money will be locked for three years. But, you can expect better returns after 3-5 years than other traditional savings schemes and you also get the tax rebate under section 80C.

But financial year of 2010 – 2011 may be the last year for you to invest in tax-saving mutual funds in India. As per the upcoming tax-code for the financial year of 2011-2012, Pranab Mukherjee, Finance Minister of India has proposed a new tax code for the financial year 2011. As per the new tax code, there will be no income tax benefits under section 80C for ELSS, Tax-Saving Fixed Deposits, and NSCs.

If the current proposal gets passed in the assembly next year, you will not be able to avail tax-benefits for ELSS from the financial year of 2011 onwards. So, it may be the last year for you to put some decent amount of money in tax-saving mutual funds. The decision of abolishing ELSS from 80C can definitely harm mutual fund industry as a major part of investment goes in tax-saving funds. Best feature of ELSS is its three years lock-in period, so you can easily withdraw your complete amount after three years of time and avail tax-benefits. Only alternative that will be left after new tax-code implementation would be ULIP with moderate risk and to grow your money. Though, as per recent announcement from SEBI, no new ULIP plans will be offered to users. Well, nothing much can be commented as of now as things are not transparent, but it might be a step towards direct tax code implementation and they might be planning to abolish even ULIP from 80C indirectly.

So, if you want liquidity of money along with tax-saving, tax-saving mutual funds can be the best bet for the financial year of 2010-2011.

Update:
As an update, direct tax code has been delayed by one year, i.e. 2012. So now you can invest in Tax Saving Mutual Funds (ELSS) in 2011 also and avail tax benefits under sec 80C. Click on the link to find the updates of new tax code for 2012.

Tax Saving Fixed Deposit

Financial year of 2010 – 2011 may be the last year for you to invest in tax-saving fixed deposits. There is a question in everyone’s mind, what can be the effect of abolishment of tax-saving FDs, NSC for investors and banks? For those who still are not aware of upcoming tax-code for the financial year of 2011-2012, Pranab Mukherjee, Finance Minister of India, has proposed a new tax code for the financial year 2011. As per the new tax code, there will no income tax benefits under section 80C for Tax-Saving Fixed Deposits, NSCs, and ELSS.

If the current proposal gets passed by assembly next year, you will not be able to avail tax-benefits for FDs under sec 80C from the financial year of 2011 onwards. So, it may be the last chance for you to put some money in these tax-saving FDs. As an investor, you must invest some amount of money in this tax-saving instrument. You can check for interest rates offered by major banks (SBI, ICICI, HDFC and other private & government banks), so whenever you find an increase in interest rate, invest some amount to avail tax benefits.

These FDs comes with a 5 year lock-in period, and the investment options that will be available after the new tax-code implementation will not be much flexible. ULIPs could be the only option available for you to invest money with a lock-in of 3 years, but as per the various studies, ULIPs do not give much return before 7-10 years.

So, if you want liquidity of money along with tax-saving, tax-saving fixed deposits can be the good option to look out for in the financial year of 2010-2011. As an investor and tax-payers, we may lose some freedom after the new tax code implementation, so utilize the current year to get the maximum benefit.

Update:
As an update, direct tax code has been delayed by one year, i.e. 2012. So, you have an option to invest in Tax Saving Fixed Deposits for one more year, i.e. 2011. Click on the link to find the updates of new tax code for 2012.

New Income Tax Code for 2010 - 2011 by Pranab Mukherjee

Government on Friday, 26th Feb 2010 has proposed new income tax code for the financial year 2010 - 2011. As per the new tax code, positive modification has been introduced in tax slabs.

There will be no income tax till Rs. 1.6 lakh (1,60,000) same as before.
But there are good changes done for other slabs-

There will be only 10% tax from 1.6 lacs to 5 lacs changed from 1.6 - 3 lacs
20% tax from 5 lacs to 8 lacs changed from 3 - 5 lacs
30% tax on the income above 8 lacs.

To give infra sector a boost, additional Rs. 20,000/- tax break is given for infra bonds. Now one can invest upto Rs. 20,000/- in infrastructure bonds.

This is a positive step taken by Finance Minister Pranab Mukherjee to cheer the tax payers in the country. Share Market also welcome the budget and gained more than 2%.

New Proposed Tax Code for Winter 2009 by Pranab Mukherjee

Government on Wednesday, 12th August 2009 proposed a new tax code for Winter session of Parliament 2009. As per the new tax code which is believed to be effective from financial year 2011, Government has indicated radical tax reforms by moderating income tax rates, abolishing STT (Security Transaction Tax) and increasing deduction amount for savings to Rs. 3 lakh.

If the proposal gets passed, then it will be a sign of joy for many income tax payers. Government has proposed different tax slabs and increased the slabs significantly high. Now there would be only 10% tax till Rs. 10 lac of income. So you would have to pay tax on Rs. 8,40,000 (10,00,000 - 1,60,000), i.e. only Rs. 84,000/-.

And if your income crosses Rs. 10 lac, then it would be 20% on the income above Rs. 10 lakh upto Rs. 25 lakh. Above 25 lacs, it would be charged at 30% rate.

As per Finance Minister, Mr. Pranab Mukherjee, Government is abolishing STT but 'long term capital gain tax' may again get introduced on the securities trading. This draft also proposed a exempt-exempt-tax versus an exempt-exempt-exempt (EEE) for savings.

The new code seeks to consolidate and amend the law relating to all direct taxes, that is, income-tax, dividend distribution tax, fringe benefit tax and wealth-tax so as to establish an economically efficient, effective and equitable direct tax system which will facilitate voluntary compliance and help increase the tax-GDP ratio.

As an update, this draft was open for public suggestions and now a second draft is expected to come in the month of June 2010 after considering suggestions. Now, it is expected that Government  may drop the exempt-exempt-tax (EET) proposal for taxation of savings as this was one of the most controversial clauses in the first draft of the DTC.

Major Updates on Direct Tax Code

Click here for New tax code for the year 2010 - 2011.