Welcome slab in your face Real Benefit Is For Those Falling In 8-10 Lakh Income Bracket

 Imust be cruel to be kind, said finance minister Pranab Mukherjee while quoting from Shakespeare's 'Hamlet' in his Budget speech. If the hike in service tax was cruel, the kindest cut came by way of personal income-tax. The finance minister rejigged tax slabs to give assessees an extra Rs 4,500 crore in their pockets though the benefit accrues to a small number of taxpayers. 

    The first gain was with the raising of the tax exemption limit to Rs 2,00,000 for all individual taxpayers up to 60 years of age. Till last year, the exemption limit for men was Rs 1,80,000 and for women Rs 1,90,000. The raising of exemption limit by Rs 20,000 for male taxpayers and by Rs 10,000 for female taxpayers will benefit them by Rs 2,060 and Rs 1,030 respectively (see chart). According to the data provided by the finance ministry, this change is expected to benefit around 2.02 crore taxpayers. 
    The exemption limit for other two categories of taxpayers—age group of 60-80 and above 80 years—has remained unchanged at Rs 2 , 5 0 , 0 0 0 and Rs 5,00,000 respectively. 
    As there is no change in the slab till the income of Rs 8,00,000, the benefit of Rs 2,060 for men and Rs 1,030 for women taxpayers continues. It's only after that the real benefit kicks in since the upper income limit for those in the 20% tax slab has been increased to Rs 10,00,000 from the present level of Rs 8,00,000. The net savings for individuals having an income of Rs 10,00,000 will be Rs 22,660 along with 3% cess on income tax. For women taxpayers, the savings will be Rs 21,630. The savings will remain the same after that even if income goes over a crore. 
    The maximum benefit of around Rs 22,000 due to new tax rates will accrue to only 5 lakh taxpayers of the total 3 crore assesses in the country. 
    The finance minister explained in his speech that he was enhancing the exemption limit as a move towards implementation of direct tax code (DTC) rates. "Although DTC will not be effective from this year, I propose to introduce the DTC rates for personal income tax,'' he announced. 
    Interestingly, the tax rates proposed by the parliamentary standing committee on finance were different from what Mukherjee proposed in the Budget. According to the committee report, income up to Rs 3,00,000 was made tax exempt. According to the report, income between Rs 3,00,000 and Rs 10,00,000 was chargeable at tax rate of 10%; between Rs 10,00,000 and Rs 20,00,000 at 20%; and income beyond Rs 20,00,000 at 30%. By introducing the new tax slabs a n d calling them the DTC rates, M u k h e r j e e made it clear that the standing committee report on tax rates will not be accepted. The standing committee had also suggested that the exemption limit should be automatically adjusted to inflation every year. Mukherjee, however, retained slabs for the other two categories of taxpayers—between the age group of 60-80 and above 80. The exemption limit for these two categories remained unchanged at Rs 2.5 lakh for taxpayers in the 60-80 age bracket and Rs 5 lakh for those above 80. 
    But the upper limit of 20% tax slab increased to Rs 10,00,000 from Rs 8,00,000 in both categories. Therefore, taxpayers in these categories will save Rs 20,600 if their income is Rs 10 lakh and more. But taxpayers in these categories up to Rs 8,00,000 income will not save anything extra due the provisions in this Budget.