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Indian Union Budget 2008 - 2009

Its Feb 29 (leap year), that time of the year for the Indian government to come out with the union budget, and it did come out. So what are the positives and negatives? How will it affect you? Lets take a look its implications.


Taxpayers may gain up to Rs 44,000 per year


The adjustment for the income tax slabs has been done in such a way that people in the high income category stand to gain even more.

The increase in tax slabs in undoubtedly great news for the salaried. The news gets even better for those in the higher tax brackets. The adjustment for the income tax slabs has been done in such a way that people in the high income category – say above Rs 2.5 lakhs per annum - stand to gain even more.

To put this in numbers, a person who had a taxable income of Rs 5 lakhs would have be paying a tax of Rs 1 lakh – before any cess on his income in the income tax slabs that prevailed till now. However, under the new income tax slabs, his tax liability would come down to Rs 55,000 translating into cool tax savings of Rs 45,000 per year. That is a huge amount of money.

So, how has this magic come about? To consider this, look at the tax slabs. The minimum exemption limit has gone up by Rs 40,000. That’s good enough. What is better is that the next slab of 20% which earlier kicked in from Rs 1, 50,000 and extended till Rs 2, 50,000 will now only kick in from Rs 3 lakh onwards.

The good news does not end here; in the prevailing regime the 30% tax bracket started from Rs 2.5 lakh onwards. In the latest budget, the 30% tax bracket only starts from Rs 5 lakhs onwards. This is the revision that will do the magic for the high income earners. And, all this is not taking into account the impact of deduction on account of Section 80C.

The huge jump in interim slabs means that many people will just fall out of the highest tax slab into the tax slab below after they start claiming deductions they are entitled to under Section 80C. This is one budget middle class salary earners are unlikely to forget.

So what does the revision in the tax slabs mean for various tax payers. For a person whose taxable income after all deductions was Rs 2.5 lakh, tax savings could be around Rs 14,000; for someone with an income of Rs 5 lakh, it could be around Rs 45,000; for someone with a salary income of Rs 7.5 lakh, tax saving would be Rs 44,000 and for those earning Rs 10 lakh, tax saving would be as much as Rs 45,000 per year.

Threshold tax exemption limit increased from Rs 1,45,000 to Rs 1,80,000 for women
Senior citizens threshold tax limit increased from Rs 1,95,000 to Rs 2,25,000
Threshold limit of tax exemption increased from Rs 1,10,000 to Rs 1,50,000 for men




The old tax slabs were:

Upto Rs 1,10,000 – Nil
Rs 1,10,001 – Rs 1,50,000 – 10%
Rs 1,50,001 – Rs 2,50,000 – 20%
Above Rs. 2,50,000 – 30%


The new tax slabs are:

Upto Rs 1,50,000 - Nil
Rs 1,50,001 – Rs 3,00,000 – 10%
Rs 3,00,001 – Rs 5,00,000 – 20%
Above Rs 5,00,000 – 30%

Income Old Tax New Tax

Rs 2,50,000 (14,000) Rs 24,000 Rs 10,000
Rs 5,00,000 (45,000) Rs 1,00,000 Rs 55,000
Rs 7,50,000 (44,000) Rs 1,74,000 Rs 1,30,000
Rs 10,00,000 (45,000) Rs 2,49,000 Rs 2,05,000


Corporate tax sees no change

FM leaves India Inc a bit disappointed by not tinkering with corporate tax levels in Budget 2008. Corporate will be paying the same rates of 33.99% tax this year as well, additionally there is no change in surcharge on corporate tax.


Debt waiver, relief schemes for marginal farmers


The banks may be on the tenterhooks but the ‘Indian farmer’ is rejoicing. The Finance Minister has acted Santa Clause and announced debt waiver and relief for small and marginal farmers. The move will cost the government a total of Rs 60,000 crore – the waiver costing Rs 50,000 cr and a 25 per cent discount on the one time waiver to cost Rs 10,000 crore.

Agricultural loans given by scheduled commericial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and over-due as of December 31 that year will be covered under the waiver scheme to address the problem of indebtedness of farmers.

According to industry sources, the banks have reasons to be happy as there was an implicit hint that they would get reimbursed accordingly. In that scenario, the move will help the banks to get rid of bad debt.

The farmers can also take fresh loans post the settlement of the older ones which will give a fillip to agri credit space that has already touched Rs 2,40,000 cr in 07-08.


Govt to slap commodity transaction tax on futures


Government will introduce a commodity transaction tax for futures, the finance minister informed the Parliament on Friday.

The finance minister also proposed to bring commodity bourses under the purview of service tax.


Sectorial Impact: Financial sector


It has advised commercial banks, including RRBs, to add at least 250 rural household accounts every year at each of their rural and semi-urban branches.

The stock markets got a blow today with the FM announcing a hike in short-term capital gains tax rate from the earlier 10% to 15% now, while the STT, Securities Transaction Tax rates has been kept unchanged.



It is clear, reverse mortgage scheme is tax-free

In a step that was welcomed by housing finance companies, the government made it clear that the loan under Reverse Mortgage Scheme would not be considered as transfer of capital, thus putting it beyond the purview of income-tax. "Reverse mortgage would not amount to transfer and the stream of revenue received by the senior citizen would not be income," Finance Minister P Chidambaram said while presenting 2008-09 Budget. The scheme was notified by the housing finance sector regulator, National Housing Bank, last year to ensure financial security to senior citizens.
Subsequently, many banks and housing finance companies including Punjab National Bank, Dewan Housing, LIC Housing Finance launched such a scheme.



Ignoring of demand of STPI extension disappoints IT industry

IT industry is disappointed that its demand for extension of the Software Technology Parks of India (STPI) scheme beyond 2009 was ignored in the Union Budget. The STPI scheme that provides a 10-year Income Tax exemption in software technology parks expires, in March 2009.



New IITs for Bihar, Andhra and Rajasthan

Three more Indian Institutes of Technology (IIT) would come up in Bihar, Andhra Pradesh and Rajasthan in fiscal 2008-09. While IITs coming up at Patna in Bihar and Medak in AP is expected to start from the next session in 2008-09, the Rajasthan government is yet to provide a suitable site for its IIT, considered as a premier engineering institution in the country.
There are seven IITs in the country - Kharagpur, Mumbai, Chennai, Kanpur, Delhi, Guwahati, and Roorkee. These autonomous engineering and technology-oriented institutes of higher education were established and declared as Institutes of National Importance by the Indian government.



Infra sops to electrify power sector

There's more 'power' to Power sector in this year's Budget. It is announced that a Transmission & Distribution Reform Fund and Setting up of a Coal Regulator.
General Project Import Duty has been reduced from 7.5% to 5%. However, for Power Projects other than Mega Power Projects, withdrawal of exemption from additional duty of Customs of 4% and additional duty of Customs introduced on goods for High Voltage Transmission and Sub-Transmission & Distribution Projects will increase the Project cost.



Other changes in Budget 2008-2009 are:



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