New Delhi, February 28
Finance Minister Jaswant Singh today unveiled a major tax reforms initiative peppered with elements to woo the salaried class and corporate houses without actually significantly tinkering with the existing rate structure.
On the direct tax front, perhaps with an eye on the number of Assembly elections slated for later this year, the Finance Minister has raised the standard deduction of the salaried employees to 40 per cent of their salary or Rs 30,000, whichever is less, for salary income of up to Rs 5 lakh. For salary income of more than Rs 5
lakh, the standard deduction has been fixed at Rs 20,000.
This, however, has been window-dressed with an increase of the service tax from 5 per cent to 8 per cent with an addition of 10 more services to the list of taxability. This, many feel, is an approach of give some but take some as well, as many services could now become costlier.
Mr Jaswant Singh also halved the 5 per cent surcharge on corporate taxes, which was levied last year. The surcharge has been removed entirely for individuals, Hindu undivided families (HUF) and Association of Persons whose income are less than Rs 8.5 lakh. For those with income of over Rs 8.5 lakh, a surcharge of 10 per cent has been imposed. The income tax exemption limit has been retained at the present level of Rs 50,000.
The general deduction applicable to individuals having income from dividends, interest etc., has been raised to Rs 12,000 from the existing level of Rs 9,000. An additional deduction of Rs 3,000 is allowable in respect of interest from government securities. Thus the total deduction under Section 80 L will be Rs 15,000.
It has also been proposed that relief be provided to employees opting for voluntary retirement scheme (VRS) by exempting VRS payments up to Rs 5 lakh, even when taken in instalments.
“A constant refrain of the salaried class has been limited standard deduction for income tax purposes. It is asserted that as a group they consistently demonstrate the best tax compliance. I agree, they do”, Mr Jaswant Singh said during his Budget speech.
The government has also decided to restore the leave travel concession (LTC) facility to its employees.
Tax rebate for senior citizens is proposed to be increased to Rs 20,000, implying that their income up to Rs 1.53 lakh will henceforth become fully exempt from income tax. After taking into account the standard deduction, the effective income tax exemption limit will effectively be Rs 1.83 lakh.
It has also been decided to accept self-declarations filed by senior citizens, with regard to no deduction of tax at source from interest income, income from units, and such other sources.
The Finance Minister also unveiled a special scheme called the Varishtha Pension Bima Yojana, through which a pensioner, or any citizen above 55 years of age, could on payment of lump-sum amount get benefits calculated at 9 per cent per annum.
On the indirect tax front, the peak rate of customs duty has been brought down to 25 per cent from 30 per cent, excluding dairy and agriculture products.
A major restructuring of the excise duty structure is also proposed to be undertaken covering the whole gamut of products under the revised three-tier duty structure of 8, 16 and 24 per cent.
