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Saturday, March 17, 2012

Budget 2012 - How much does it benefit Salaried Class ?

People often quote the Great Kautilya as attaching importance to public finance and the taxation system in the Arthasastra – To him,  the power of the government depended upon the strength of its treasury. Pranab Mukherjhee sure is a great follower – the mildest reaction to the present budget can only be disappointment.  This is another attempt to mop up extra crores through indirect taxes which in turn will lead to further price rise – with the unkind cut that would come from RBI interest rates too would go spiraling up.   Sure there cannot answers to India’s various problems in one budget exercise but the annual budget is one where Govts try to balance between aiming at growth and maintaining the present costs. 

In the 1970s understand that the personal income tax  had 11 tax brackets with the tax rates progressively rising from 10 per cent to 85 per cent. We have moved totally away from that regime but that was a time, when it had a small % in that bracket – that was also the time when large scale tax evasion was the order.  Now when will see a simple tax structure where all income earners, whether it is professionals, industrialists or salaried class – end up paying tax in the simplest way – that is ensure that more people in the net, the structure is simple and evasion is minimum.  If you are regular salaried class, who read of the budget on the net and jumped for a calculator to calculate how much of savings this would make………………….. think of a moment of the logical incongruities

First the gain in interest exemption  up to Rs.10000/- for Savings Bank Interest for those earning up to 5 lakhs.    Savings Bank A/c – an account where your salary gets credited and hence, even under the fallacious assumption of your parking a huge amount, you cannot have the entire annual income for the whole year ! – Still go ahead with the assumption.  If you keep Rs.166000/- for one year in Savings Bank, earning interest @ 6% - you get closer to that Rs.10000/-  - to make that a benefit.  Now that amount of Rs.166000/- constitutes 33% of the total of 5 lakh and how probable that any in that bracket would get the maximum benefit does not need any explanation at all.

The other one a bit complicated   A new equity scheme called Rajiv Gandhi Equity Saving Scheme is being introduced to promote equity investments. The scheme will get income tax deduction, which will be purely applicable to the new retail investors who will invest directly into equity up to Rs. 50,000, with a lock-in period of three years. The investor's annual income should not exceed Rs. 1,000,000.  So, if you are in a position to invest 5% for a 10 lakh earner and higher % for those at lower incomes, this would be beneficial – provided it is direct investment in equities and locked for 3 years. 

Pranab da knows fully well the Indian lust for yellow metal and hence had made another attempt – he has  announced a hike in customs duty on standard gold to 4 percent from 2 percent. The customs duty on non-standard gold is also hiked to 10 percent from 5 percent.  In contrast, branded silver jewellery was exempted from excise duty. So ‘Go for Gold’ should no longer be the mantra ‘Go for Silver’ instead !!  "One of the primary drivers of the current account deficit has been the growth of almost 50 per cent in imports of gold and other precious metals in the first three quarters of this year," Mukherjee said in his Budget speech.  The country imported a record 969 tonnes of gold in 2011. In addition, global gold prices soared to a record high of more than $1900 an ounce on fears of a growing eurozone sovereign debt crisis.  So Gold imports is at a high after petroleum and the currency keeps depreciating.  The immediate impact would be felt on jewellery demand.  But given the Indian lust for Gold, this would make a minimal impact on the buyers though Traders pretend it to be the other way !  The precious metal is currently trading around Rs 27,700 per 10 grams.  Jumping the detractors bandwagon, Bullion and jewellery traders in several parts of the country, including Delhi and Mumbai  downed shutters for three days in protest against the Budget proposal to raise duty on gold imports and levying excise on unbranded jewellery.  Some contend that the proposed increase in import duty will lead to unchecked smuggling of the metal. Is that a veiled threat ? – if you increase the rate, they say that there will be no payers and more will resort to smuggling !!  - certain to be condemned and those found smuggling should be punished very severely.  That would be a deterrant !!   There is some news that Yellow, pink and blue diamonds are catching the eye of investors around the world, according to dealers and industry insiders.  But will Natural coloured diamonds come anyway near the yellow gold is no Q at all.  Internationally, there exists tremendous demand for diamond and coloured ones ! – and there reportedly not enough diamonds to satisfy the thirst of new billionaires – again, your wife reading the report might start the insatiable urge, not understanding the simple fact that diamonds glitter at the Trader’s showcase and not when worn in person !!

The personal income tax slabs is not great gain – the movement from 1.8 to 2 lakhs would provide marginal relief of Rs.2000/- which sure would get washed away in the spiralling prices.   The finance Minister has not mentioned the tax slabs for women and senior citizens in his Budget Speech so far but it is awaited.  The finance minister has also said that taxation of unexplained money, credits, investments, expenditures etc, will be at the highest rate of 30%, here the slab of income will not be considered.  The FM has proposed to give a deduction of Rs 5000 for expenses incurred on preventive health check-up.   The Whole Nation is talking on the streets, walking, driving and moving and in tune with the popular mood, the  custom duty of LCD and LED panels has been exempted. In addition, the mobile phone parts are exempted from basic customs duty, which is expected to bring down the price of mobile phones.

Tail Piece :  This may not be beneficial to all reading this but good, if you have taxable income on the higher slab.   While the tax slab rates (10% /20%/ 30%) remain the same, the trigger for the top tax slab (30%) has been raised from Rs 8,00,000 to Rs 10,00,000.   This will result in a tax saving of upto Rs 20,600 (in addition to Rs 1,030/ Rs 2,030) for persons having income above Rs 8,00,000.

So, what do you feel about the Budget ?

Regards – S. Sampathkumar.

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