“All is well”; for the Aam Aadmi in the Budget 2011. With no significant changes it elicits a neutral reaction.

To quote statistics, GDP is estimated to have grown at 8.6% in 2010-11, and expected to grow at 9% in 2011-12. Direct Taxes Code proposed to be effective from April 01, 2012 and Inflation is seen at 5%. The government has set the fiscal deficit target for FY12 at 4.6% of GDP.

Personal Taxation: No Significant change

While the intent has been to move towards the DTC structure which is effective 2012, from a structural sense not much has changed in the income tax slabs. The basic tax exemption limit for men is up to Rs. 1.8 lakhs (up by Rs. 20000 but less than the expected limit of Rs. 2 lakhs. This will mean an additional savings of Rs. 2640 for men The limit for women remains unchanged at Rs. 1.9 lakhs.

The exemption limit for senior citizens is now Rs. 2.5 Lakh and will be applicable from the age of 60 years (earlier 65 years). What seems a tad unusual is introduction of a new category for citizens above the age of 80 years. They will now get a basic tax exemption of Rs. 5 lakhs. In jest, the minister while announcing this structure also went ahead to clarify that he still dint come under this bracket and had more years to go. The will get benefit by Rs. 4133 in a year.

What seems like a change of reasonable significance is the change in the filing norms. Those with just salary income as their source of income and having taxes deducted at source will not need to file income tax returns. However this means that there should be no other income (interest income or income from property or gain) that needs to be accounted for. The central board of direct taxes will be issuing a notification soon on the exempt classes for salaried citizens who donot need to file returns. Currently, every person whose earnings exceed the taxable limit has to file a income tax return. The person in the lowest tax brackets benefits from this move. However, till more details are known, it is wait and watch for us. The Rs. 20,000 tax-free investments in infra bonds continues this year with no change.

Service Tax : More Outflow

The effort to introduce GST with the agenda to pass an amendment in the constitution this year to put into effect the Goods and services tax is a good step towards aligning the taxation structure pan – country. This has also brought in additional services under the tax net. The rate of service tax is retained at 10%+ cess. However there are a host of new services for which you will need to shell out more.

Your hospital visits just got expensive. Health check-ups done by hospitals with more than 25 beds or those with air conditioning will now be in the service tax net. If you step into a hotel where the tariffs is more than Rs. 1000 a day or eat at an air-conditioned restaurant that has a license to serve liquor your bill amount has just moved upwards. Most of these establishments already bear luxury tax imposed by the state governments, and hence, are likely to pass this additional burden on to the consumer.

Apart from these, the service tax on economy class airfare has been increased by Rs 50 to Rs 150 on domestic sectors and by Rs 250 to Rs 750 for international travel. Domestic travel by business class or any other class higher than economy will attract a service tax of 10% + cess on the value of the service provided by the airline, a steep increase from the earlier Rs 100 per ticket.

In the insurance space, the mandate by the FM is clear to ensure that these companies focus on the business of risk cover and directionally moving the consumers too in the same direction. Investment portions of all policies now will attract the service tax net. This means apart from the pure term cover all other investment polices including endowment, money back etc will be more expensive. However there is no move to make health insurance more affordable for the masses.

A nominal 1% central excise duty has also being imposed on 130 items, many of them consumer goods that were earlier exempt from certain indirect taxes.

All this means more money outflow.

Foreigners can Invest in Indian MFs

The budget allows foreigners to invest in Indian equity oriented mutual funds if they fulfill the SEBI KYC norms. Till now they could invest only in foreign funds which had India in their emerging markets theme. However, how the KYC norms will be fulfilled for these customers remains to be seen.

There were no policy reforms or initiatives introduced to alleviate inflation, address infrastructural concerns. All in all, the budget without making any major dent is seen as just retaining status quo.

Author: Daisy Fernandes

Create Your own Budget by using this monthly budgeting tool.  Use this tax calculator to calculate your post budget tax liability for the Assessment Year (2012 – 2013).

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