BUDGET 2010: Request to increase threshold exemption in view of high inflation to provide relief to lower middle class.

[C.A. DEV KUMAR KOTHARI]

The Finance Minister, Shri Pranab Mukherjee on 26^th February 2010 announced long awaited tax concessions for individual tax payers. The reduction of slabs is aimed to simplifications and ease in understanding. On the basic threshold there is some relief only for female tax payers by increasing exemption from 160K to190 K and there is no change for male taxpayers as well as for senior citizens. Important changes is in the first tax rate slabs for men, women and senior citizens the second slab is proposed to from Rs 5 lakh to Rs 8 lakh.

 The FM has also increased the investment based deduction by Rs.20000 through new section 80CCF for infrastructure bonds only for one year namely AY 2011-12 (PYE 31.03.2011). This will not be a regular feature like section 80C.

Substantial upward revision is over due:

We find that threshold exemption was Rs.150 lakh for AY 2009-10 and it was revised just by Rs.10000 to Rs.160000 for AY 2010-11 (current PY to end on 31.03.2011). the increase in last budget was miniscule and much more was desirable. Therefore, it can be said that a substantial upward revision is over due.

Inflation:

Inflation has been major concern of government. For the people in lower middle income group (say up to Rs. 25000 per month) inflation has created havocs. Furthermore, in view of changed times requirements have also increased. Therefore, lower middle class is very badly affected lot and they need reprieve by leaving them from tax net, at least for direct taxes.

All class of peoples pay indirect taxes:

Indirect taxes are being paid by all class of people on goods consumed and services availed. Therefore, it should not be a reason that some income-tax must be paid even by lower middle class.

Suppose a person spends about Rs.10000 per month and Rs. 120000 per annum. On an average he bear indirect taxes of Rs. 400 per month and Rs. 4800/-( Roughly estimating about 50% of expenses as liable to indirect taxes at average rate of 8%). Therefore burdening them with direct tax is not desirable.

People in lower middle class and inflation:

Analysis of tax savings from tax proposals is given in tables hereafter. We notice that there is no saving at all for income up to Rs. two lakh for any type of person.

An income of Rs.Two lakh per year can roughly be said to belong to any persons having monthly income of Rs.15000/- + bonus and other income of Rs.20000/-. These people have been worst hit by inflation. Furthermore from the new session of schools and colleges, in most of educational institutions fees is likely to be raised from April 2010.

It is desirable to reduce burden of tax and its compliance and to make available more time to people in lower income group, so that they can make more efforts to learn and earn more and try to provide good education to children. Therefore they must be allowed freedom from taxation. An average monthly income of Rs.20000 should be fully exempted therefore, basic threshold limit should have been raised to Rs.250000/-

Impact of revision in rate and slabs are analyzed below:

A.for male tax payers not being senior citizens:

Slabs (Rs)	Rate
0 - 160000	0
160001 - 500000	10
500001 - 800000	20
800001 and above	30

Old tax slabs:

Slabs (Rs)	Rate
0 - 160000	0
160001 - 300000	10
300001 - 500000	20
500001 and above	30

Impact:

Taxable income (Rs)	Tax -before budget	Tax after budget	Difference
	(Rs)	(Rs)	(Rs)
200000	4120	4120	0
500000	55620	35019	20601
1000000	210120	158619	51501
1200000	271919	220419	51500
1500000	364619	313119	51500
2000000	519119	467619	51500
2500000	673619	622119	51500
4000000	1137119	1085619	51500

Average rate of tax on income of 5,10 and 20 lakh rupees comes to 7.02%,15.86% and 23.38%
B. for Female taxpayer not being senior citizen
New tax slabs:

Slabs (Rs)	Rate
0 - 190000	0
190001 - 500000	10
500001 - 800000	20
800001 and above	30

Old tax slabs:

Slabs (Rs)	Rate
0 - 160000	0
160001 - 300000	10
300001 - 500000	20
500001 and above	30

Impact:

Taxable income (Rs)	Tax -before budget	Tax after budget	Saving
	(Rs)	(Rs)	(Rs)
200000	1029	1029	0
500000	52529	31929	20600
1000000	207029	155529	51500
1200000	268829	217329	51500
1500000	361529	310029	51500
2000000	516029	464529	51500
2500000	670529	619029	51500
4000000	1134029	1082529	51500

Average rate of tax on income of 5,10 and 20 lakh rupees comes to 6.38%,15.55% and 23.22%
For Senior Citizens - males and females both New tax slabs:

Slabs (Rs)	Rate
0 - 240000	0
160001 - 500000	10
500001 - 800000	20
800001 and above	30

Old tax slabs:

Slabs (Rs)	Rate
0 - 240000	0
160001 - 300000	10
300001 - 500000	20
500001 and above	30

Impact:

Taxable income (Rs)	Tax before budget	Tax after budget	Saving
	(Rs)	(Rs)	(Rs)
200000	0	0	0
500000	47379	26000	21379
1000000	201879	150379	51500
1200000	263679	212179	51500
1500000	356379	304879	51500
2000000	510879	459379	51500
2500000	665379	613879	51500
4000000	1128879	1077379	51500

Average new rate of tax on income of 5,10 and 20 lakh rupees comes to 5.20%,15.04% and 22.96%