Budget 2012 & 2013: everything you need to know

Budget 2012 – 2013: Everything You Need To Know

Income Tax Related Changes

Tax Rates and Slabs

There has been no change in income tax rates – the rates remain 10%, 20% and 30% for their respective slabs.

There has been changes in the tax slabs, though. Following are the proposed tax slabs:

Basically, on income between Rs. 1.8 Lakhs and Rs. 2 Lakhs, now you would pay a tax of 10% instead of 20% earlier, saving Rs. 2,000. Also, between income of Rs. 8 Lakhs and Rs. 10 Lakhs, you would pay 20% tax instead of the 30% tax earlier, saving Rs. 20,000.

Thus, if your income is more than Rs. 10 Lakhs, you would save Rs. 22,000 in income tax.

Deduction of Interest from Savings Account

Interest earned from a bank saving account has been made deductible up to Rs. 10,000 per year. So if you in the 30% tax bracket, you can save an additional Rs. 3,000 in income tax.

Please remember that this is applicable only for the interest earned from your savings account – interest from fixed deposits (FDs) is still taxable.

In my opinion, although this saves you some tax, this is a regressive step. Over the last few years, the budgets has tried to simplify things by bringing everything under Section 80C deductions. Now, we are moving back to the old days of rebates and Section 80L (if you have been filing income tax returns for 8-10 years, you would know what I am talking about!)

Deduction for Preventive Health Checkup

An expense of up to Rs. 5,000 per year incurred on preventive health checkup would be deductible from your income. This would be included within the limit of deduction of health insurance premiums.

So far, you could get tax benefit for the premiums paid for health insurance. Now, you would get tax benefit even for health check up, which is a step in the right direction.

Please remember that this is over and above the tax-free reimbursement of medical bills up to Rs. 15,000 per year.

For more details on deduction of health insurance premiums, please see “Insure your health, save your income tax

No Advance Tax for Senior Citizens

If you are a Senior Citizens and do not have any income from business, you would not need to pay any advance tax.

Reduced Securities Transaction Tax (STT)

The Securities Transaction Tax (STT) has been reduced from 0.125% to 0.100%. This would result in somewhat lower transaction costs for your equity trades.

Direct Tax Code (DTC) Not Applicable for 2012 – 2013

The budget has mentioned that the Direct Tax Code (DTC) would be introduced quickly, it also makes it clear that the DTC would not be applicable for FY 2012 – 2013.

Therefore, you can invest without worrying about whether the Securities Transaction Tax (STT) would be abolished or not, whether long term capital gains (LTCG) would be taxed or not, etc.

One great positive spin-off of this is continuance of ELSS as a tax saving instrument. Fr the next year as well, you can continue investing in ELSS to get a double benefit – tax savings and great returns!

Tax Deducted at Source (TDS) for Property Transactions

This is a brand new provision from this budget:

• If you are buyer of a property, you have to deduct TDS (for the profit made by the seller) and deposit it with the government
• The TDS would be 1% of the sale value
• This is applicable if the sale value is more than Rs. 50 Lakhs in urban areas and Rs. 20 Lakhs in rural areas
• This is not applicable on sale of agricultural land
• Registration of the property would not be possible unless the buyer provides proof that he / she has deducted the TDS and paid it to the government
• This comes into effect from 1st October, 2012
• This is applicable only for secondary market sales – it is not applicable to a house / flat purchased directly from a builder (more clarity is expected on this)

This provision is a big googly from this budget. It has been supposedly introduced to reduce generation of black money from real estate transactions, but it would add a LOT of hassle for common people.

If you are buying a property from someone, why should it be your business to collect tax from the seller? Basically, the government is passing on some of its work to you! This is going to add a lot of frustration to the property buying process, and would produce a lot of “agents” that would deposit the TDS on your behalf for a fee.

Tax Free Infrastructure Bonds

The upper limit of tax-free infrastructure bonds has been doubled to from Rs. 30,000 Crores to Rs. 60,000 Crores. This means that various financial institutions can issue double the bonds as compared to last year, which means you can earn more tax-free income!

Overseas Assets

Income tax returns and their assessment can now be reopened for up to 16 years if you have assets outside India. If you have any holdings overseas, you need to get your act together!

Equity Market / Stock Market Related Changes

Rajiv Gandhi Equity Savings Scheme (RGESS)

To encourage small and new investors to participation in the stock markets, a new tax benefit has been introduced through a new scheme called “Rajiv Gandhi Equity Savings Scheme”.

Here are its features:

• You would get a 50% deduction for an investment of up to Rs. 50,000 in equities
• This tax benefit is available only if your income is less than Rs. 10 Lakhs per year
• If you invest Rs. 50,000, you can claim a deduction of Rs. 25,000 (50% of Rs. 25,000). Thus, if you are in the 20% tax bracket, you can save tax up to Rs. 5,000 per year.
• The investment has to be made directly in equities – it can not be in Mutual Funds (MFs) (more clarity is expected on this soon)
• There is a lock-in period of 3 years for these investments
• The RGESS is available only to first time investors (more clarity is expected on this soon)

IPOs in Electronic Form

The budget has proposed that all Initial Public Offerings (IPOs) of more than Rs. 10 Crores in value would be done in electronic form. This has been done to encourage stock market participation from people staying in rural and remote areas.

Disinvestment Target

The disinvestment target for FY 2012 – 2013 is Rs. 30,000 Crores. Since the government would be raising this amount from the disinvestment of its share in public sector undertakings (PSUs), you would see a lot of public issues from PSUs during the next year.

Other Changes

Increase in Excise Duty and Service Tax Rates

The rates for excise duty and service tax have been increased to 12% from the earlier 10%. Also, service tax would now be applicable on everything except for a very few things (like government services, educational services, agricultural services, etc).

So everything would cost a little more going forward – from small things like your light bill to big purchases like a car.

Duty Free Allowance

People coming into India can bring items of certain value into India without paying any customs duty. This is called the duty free allowance.

This duty free allowance has been increased to Rs. 35,000 from the earlier Rs. 25,000. for children, it is Rs. 15,000 from the earlier Rs. 10,000.

Miscellaneous Notes

• There has been no change in the income tax rates for companies
• The fiscal deficit for FY 2012 – 2013 is projected at 5.1% of GDP (Gross Domestic Product)
• The introduction of the Goods and Services Tax (GST) has been proposed from August 2012
• The total subsidies are planned to be limited to less than 2% of GDP
• For making our financial system stronger, recapitalization of public sector banks has been proposed