INCOME TAX SLABS 2010-11-Resident Indians, Salaried Class, HUFs, etc-VRK100-28022010

INCOME TAX SLABS 2010-11-Resident Indians, Salaried Class, HUFs, etc


Rama Krishna Vadlamudi                        February 28, 2010


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HIGHLIGHTS OF UNION BUDGET 2010-11
(Announced by India’s Finance Minister on February 26, 2010)

 Personal Income tax slabs have been increased considerably bringing down the income tax payable considerably for individuals, salaried class and HUFs

 For Male individuals below 65 years of age and HUFs: The first slab is kept unchanged at 0 to Rs 1.6 lakh with tax at NIL. The second slab is Rs 1.60 lakh to Rs 5.00 lakh (raised from Rs 3.00 lakh) with tax rate at 10%. The third slab is Rs 5.00 lakh to Rs 8.00 lakh (raised from Rs 5.00 lakh) with tax rate at 20%. And the final slab is Rs 8.00 lakh and above with tax peak tax rate at 30%.

 A new section 80CCF has been introduced to give tax exemption of Rs 20,000 exclusively for investment in long-term infrastructure bonds (to be notified by Central Government) made by individuals and salaried class

 The limit of Rs 20,000 under section 80CCF is over and above the Rs one lakh tax exemption being provided under section 80C of the Income Tax Act for certain investments

 Central Government will contribute Rs 1,000 every year to your NPS (New Pension System) account if you open it in 2010-11. The amount of Rs 1,000 will be given by the Government for a total of three years, provided the annual contribution is between Rs 1,000 and Rs 12,000.

 Scheme of one per cent interest subvention on housing loan upto Rs.10 lakh, where the cost of the house does not exceed Rs.20 lakh — announced in the last Budget — extended up to March 31, 2011

 Service tax will be levied on a person covered by health insurance scheme, for any health check-up or treatment, where the payment for such health check-up or treatment is made by the insurance company directly to such hospital, nursing home or multi-specialty clinic. This will be only applicable to cashless insurance claims. As such, health insurance premium of such policies will go up in future.

 A two-page Saral II form for individual salaried taxpayers is being introduced for coming assessment year 2010-11

 TDS: Tax Deduction at Source for payment of Rent is proposed to be increased from Rs 1.20 lakh to Rs 1.80 lakh per annum from FY 2010-11, under Section 194 I of the IT Act

MATRIX SHOWING PERSONAL INCOME TAX SLABS (FY 2010-11)

For Women below age of 65 years #                For resident individuals, HUFs, etc #


Total Annual Income (Rs.) Rate of                    Total Annual Income (Rs.)      Rate of
                                         Income Tax                                                           Income Tax
Up to 1,90,000                  NIL                       Up to 1,60,000                         NIL

1,90,001 to 5,00,000        10%                       1,60,001 to 5,00,000               10%

5,00,001 to 8,00,000        20%                       5,00,001 to 8,00,000               20%

8,00,001 and above          30%                       8,00,001 and above                  30%

# For senior citizens of 65 years and above, the exemption limit is Rs 2.40 lakh

Cess for Education: At three per cent on income tax payable


 
NEW SECTION 80CCF INTRODUCED IN BUDGET 2010-11

(as per FM’s announcement on February 26, 2010)

SEC. DETAILS OF THE SECTION DEDUCTION

Rs

80CCF Investment in long-term infrastructure bonds as notified 20,000

by Government of India (Details are yet to be notified)

(This Rs 20,000 deduction is over and above the Rs one lakh permitted under Section 80C. This new section 80CCF was introduced for the first time in Budget 2010-11.)







Deductions allowed under Section 80 C (Aggregate amount of deduction under this section shall not exceed Rs one lakh) (Read with section 80CCE)

In 2005-06, section 80C replaced old section 88. Under section 80 C, individuals and HUFs are allowed deductions of up to a maximum Rs. 1,00,000/- from taxable income for payments and contributions as given below; without any sectoral caps.

1 Life Insurance premia. Annual premium of any policy shall not be more than 20 per cent of the sum assured.

2 Contribution to a recognised provident fund

3 Voluntary contribution by employee to a recognised provident fund

4 Contribution to Public Provident Fund account (PPF scheme allows interest on annual contributions of up to Rs 70,000 only)

5 Contribution by an employee to an approved superannuation fund

6 Contribution to National Savings Certificate (NSC) VIII issue

7 Interest accrued on NSC VIII issue during the current year except interest for the sixth year

8 Contribution to Unit Linked Insurance Plans

9 Contribution to annuity plan of a life insurance company

10 Equity Linked Savings Scheme (ELSS) of a mutual fund

11 Contribution to pension schemes of two mutual funds, namely Templeton India Pension Plan and UTI Retirement Benefit Pension Fund

12 Tuition fee paid to a college, school, etc, for education of any two children of an assessee. However, the eligible amount shall not include any payment towards any development fees or donation.

13 Instalments paid in a year towards Housing Loans

14 Bank fixed deposits for a period of not less than five years (wef April 1, 2006)

15 Deposits in a Senior Citizens Savings Scheme (SCSS) (wef April 1, 2007)

16 Sums deposited in a Five-year time deposit scheme of a Post Office (wef April 1, 2007)





SECTION 80CCC (Aggregate amount of deduction under this section shall not exceed Rs one lakh) (Read with Section 80CCE)

Section 80CCC allows for a deduction from income of an amount of Rs one lakh deposited by an individual towards any annuity plan of the Life Insurance Corporation or any other insurer for receiving pension. (Prior to April 1, 2006, only Rs 10,000 was allowed).





SECTION 80CCD (Aggregate amount of deduction under this section shall not exceed Rs one lakh) (Read with Section 80CCE)

Section 80CCD allows for a deduction in respect of contribution to New Pension System as notified by the Central Government. Individuals, including public/private sector employees and self-employed individuals, can avail this tax benefit. In respect of employees, the deduction shall not exceed 10 per cent of their salary. For employees, this section is applicable from January 1, 2004 and for self-employed individuals from April 1, 2008 (FY 2008-09).



SECTION 80CCE (VERY IMPORTANT – INTRODUCED IN 2005-06)

Section 80CCE states that the aggregate amount of deductions under section 80C, section 80CCC and section 80CCD shall not, in any case, exceed Rs one lakh



DEDUCTIONS THAT ARE ALLOWED IN ADDITION TO DEDUCTIONS

UNDER SECTIONS 80C, 80CCC & 80CCD

SEC. DETAILS OF THE SECTION DEDUC-TION Rs

80D Health insurance premium of the individual or family 15,000

In addition to above, health insurance cost of parents* 15,000

* If parents are senior citizens (65 years & above) (the parents need not be dependant on the assessee) 20,000



80DD

Expenditure incurred for medical treatment of a disabled dependant (ordinary disability) #

50,000

For severe disability # 1,00,000

# pertains to deduction for maintenance (including medical treatment), training and rehabilitation of a handicapped dependant; or on the amount paid or deposited under a scheme of the Life Insurance Corporation of India or other insurance for maintenance of disabled dependant

80DDB Medical treatment of herself or a dependant 40,000

If the assessee is a senior citizen 60,000

80E Individuals can claim deduction for interest paid on loan taken for pursuing full-time education of her/his own or her/his relative (Note: Deduction can be claimed for eight years and education includes all fields of studies post-schooling) Actual amount paid

80G Donations paid to Prime Minister's National Relief Fund or such other approved funds 100% of donation

Donations paid to other funds/institutions 50% of donation

80U Deduction allowed to inviduals with permanent physical disability (including blindness) 50,000

In case of severe diability 75,000



EET METHOD OF TAX TREATMENT OF SAVINGS EXPLAINED



As of now, individuals enjoy several tax benefits – of course, subject to certain quantitative limits – on their investments in a multitude of savings instruments; namely, EPF, VPF, PPF, GPF, NSC, insurance policies, ULIPs, ELSS, bank fixed deposits, post office deposits, housing loan instalments, interest paid on housing loan, etc. The present system is called ‘EEE’ (Exempt-Exempt-Exempt) meaning investments enjoy benefits in three stages: 1). Exemption allowed at the time initial contribution, 2). Exemption throughout the accumulation period, and 3). Exemption at the time of withdrawal.



The Government proposes to shift the tax treatment of savings to a new system called ‘EET’ (Exempt-Exempt-Taxed) whereby exemption will be allowed at the time of initial investment and accumulation period only; but the withdrawals will be included in the taxable income and taxed according to one’s tax slabs. As of now, provisions of section 80CCC and section 80CCD of the Income Tax Act are in uniformity with the EET method. Simply put, under the proposed EET regime, tax savers will be postponing their tax liability for future or till the date of retirement.



TAX BENEFITS FOR NEW PENSION SYSTEM (NPS):



The New Pension System has become operational since 1st January, 2004 and is mandatory for all new recruits to the Central Government service from 1st January, 2004. Since then it has been opened up for employees of State Government, private sector and self employed (both organized and unorganized). NPS is now open to all citizens. An NPS Trust was set-up on 27th February 2008 to manage the funds of NPS. NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA). NPS will continue to be subjected to EET method of tax treatment of savings.



In the Union Budget 2009-10, the following amendments (taking effect retrospectively from 1.4.2008 from FY 2008-09) are made for NPS:

1) It is now proposed to exempt the income of the NPS Trust from income tax – section 10(44)

2) Any dividend paid to the NPS Trust shall be exempted from Dividend Distribution Tax – section 115-O

3) Transactions by the NPS Trust will be exempt from the Securities Transaction Tax

4) NPS Trust shall receive all income without any tax deducted at source – section 197A

5) Till now, the tax benefit for contributions to NPS, under section 80CCD, was available to public/private section employees only. However, it is now proposed to extend the NPS to “self-employed” individuals also under section 80CCD.



In the Union Budget 2010-11 announced on February 26, 2010; the following amendments are made for NPS: “Central Government will contribute Rs 1,000 every year to your NPS (New Pension System) account if you open it in 2010-11. The amount of Rs 1,000 will be given by it for a total of three years, provided the annual contribution is between Rs 1,000 and Rs 12,000.”



OTHER DEDUCTIONS THAT ARE CONTINUED TO BE ALLOWED:



1. Entertainment allowance (available only for Government employees)

2. Professional Tax

3. Interest paid on Housing loans, up to Rs 1.50 lakh, if the property is self occupied, is allowed as deduction from taxable income – section 24(1)(vi)



Note: Tax slabs and deductions are as proposed by the Finance Minister in his Budget 2010-11 speech on February 26, 2010. Sources: Finance Bill 2010, Union Budgets and others.



HIGHLIGHTS OF UNION BUDGET 2009-10

(Announced by India’s Finance Minister on July 6, 2009)



• Surcharge, of 10 per cent on income tax (for individual, HUF and others) with taxable income of more than Rs 10 lakh, has now been scrapped – benefitting high income groups

• Fringe Benefit Tax, introduced in 2005 and payable by employers, has now been abolished. Now, with the abolition of FBT, employees have to instead pay a perquisite tax on ESOPs at the time of the shares getting vested in addition to the capital gains tax when he/she divests the shares. FBT which had reduced the take-home-pay of employees will revisit employees in the form of a perquisite tax to be paid by each employee. For example, contribution paid to an approved superannuation fund by the employer in excess of Rs 1 lakh will be treated as a perquisite and the individual employee has to pay tax as per his/her slab.

• Wealth tax exemption limit has been raised to Rs 30 lakh from Rs 15 lakh which was last revised in 1992 (the new proposal will apply on the valuation of net wealth as on March 31, 2010). Currently, it is individuals, HUFs and companies which come under the purview of wealth tax. Wealth tax is payable at the rate of one per cent of net wealth.

• Under Section 80DD, deduction is increased to Rs 1 lakh from Rs 75,000 for medical treatment of a dependant with severe disability (however, for ordinary disability the deduction is kept unchanged at Rs 50,000)

• Donations to electoral trusts (political parties) shall be allowed 100% deduction

• Under Section 80E, deduction for interest paid on higher education loans has been extended to cover all fields of study including vocational studies post-schooling

• Expenditures in excess of Rs 20,000 are to be routed through an account payee cheque or a bank draft in term of section 40A(3) of the IT Act. This monetary limit has now been raised to Rs 35,000 applicable only in respect of freight charges paid to goods carriers. This will be effective from October 1, 2009.

• Gift tax: Earlier, gifts in the form of cash from non-relatives were exempted up to a limit of Rs 50,000 per year (if sum exceeds Rs 50,000, then entire amount is eligible for being taxed). While this limit remains unchanged, the latest budget proposes to bring non-cash gifts into the tax ambit. Now gifts of both movable and immovable assets are proposed to be taxed as income where the value exceeds Rs 50,000. Earlier, gifts in non-cash form (like jewellery, archaeological collections, paintings and gold), even if they were in excess of Rs 50,000 were exempt from any tax in the hands of the recipient. However, as a consolation, any expenditure incurred for obtaining that gift up to 50% of the value is eligible for deduction.

• Voluntary Retirement Scheme (VRS): As per VRS, employees enjoyed tax exemption of up to Rs 5 lakh on the lump sum received by them as per section 10(10C). They were also allowed the benefits of spreading arrears backwards or carrying advances forwards, under section 89, so that they can reduce their tax burden. Now, the latest budget has proposed to do away with this double benefit – whereby the benefits under section 10(10C) will not be allowed if the benefits under section 89 are availed. (It is a negative for salaried class)

• Tax Deduction at Source: It is now proposed to make amendments in the Income Tax Act to provide that any person whose receipts (for example, interest on bank fixed deposits or others) are subject to deduction of tax at source, i.e. the deductee, shall mandatorily furnish his PAN to the deductor (like bank, etc) failing which the deductor shall deduct tax at source at higher of the following rates:

i. the rate prescribed in the Act;

ii. at the rate in force i.e., the rate mentioned in the Finance Act; or

iii. at the rate of 20 per cent

TDS would be deductible at the above mentioned rates and it will also apply in cases where the taxpayer files a declaration in form 15G or 15H (under section 197A) but does not provide his PAN. Further, no certificate under section 197 will be granted by the Assessing Officer unless the application contains the PAN of the applicant. This amendment will take effect from 1st April, 2010 (This is a negative for senior citizens and individuals with low income)



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