Dream team delivers the dream

For those who are not into much of finance and tax, I’m not talking about Saurav Ganguly’s team, that hardly delivers.

“He’s the man of a Thousand Faces, the chameleon who turns pink when facing the Left front, develops blue pinstripes when facing businessmen and turns dehati when facing Villagers. He has one face for women, another for senior citizens, yet another for foreign investors”.
- The Economic Times – 1st March 2005

Ya, the above praise was for our finance minister P. Chidambaram on his BUDGET Proposal 2005-06

Although you might be familiar with most of the proposals, let me put some light on a few of those, which will impact an individual.

To start with, the tax rates have been revised.
· The minimum limit for tax has been raised to Rs. 100,000.
· More cheers for women as the minimum limit for them is Rs. 125,000 and for senior citizen it is Rs. 150,000.
· Education cess of 2% introduced last year has been continued.
· Surcharge of 10% which was earlier on income above Rs.8,50,000 is applicable now on income above Rs.10,00,000.

The rate comparison for Individuals


For all the different categories of income there is a positive value in the column - tax savings, which means higher disposable income for individuals.
(In short, you can shop more and expend more).

Cleaning up deductions and rebates section:
One section provides for tax and several others on how to save tax. Through this budget there is an attempt to clean up some of the complexities.

There is a small hit for the salaried class since Standard deduction is withdrawn with effect from April 01, 2006. But the net effect is still positive.

The Section 88 dealing with rebate has been removed.
So is Section 88B (Rebate for senior citizen) and Section 88C (Rebate for Women).
Remember, women and senior citizens are compensated by the increase in tax slabs. But I feel the pinch and gain here is not the same for all.

Rebate under Section 88B was Rs. 10,000 and now additional tax exemption is upto 1,50,000 for senior citizens, which implies a minimum benefit of Rs. 5,000 only. But it would be advantageous for those who are coming under higher tax bracket. Similar would be the case for women taxpayer too.

New Section 80C is inserted to take care of the investments which were earlier taken care by Section 88. I feel this new section will help the “aam aadmi” more than the old Section 88.

Section 80C will provide deduction for specified investments such as
a Life Insurance premium
a PF or / and PPF contribution
a Contribution towards NSC
a Purchase of infrastructure bonds
a Repayment of principal amount of housing loan
a Contribution to ULIP UTI plan and ULIP plan of LIC mutual fund
a Payment towards notified annuity plan of LIC
a Specified schemes of mutual funds
a Contribution to approved superannuation fund

Overall deduction is limited to Rs.1,00,000 (including 80C, 80CCC & 80CCD (Contribution to pension funds).

Considering Net tax savings for individuals, Section 80C brings more smiles than erstwhile Section 88. Although the taxpayer will have to plan harder to ensure maximum benefits on the tax front.

For all those who don’t want to think hard, don’t worry, there are Chartered Accountants to cater your needs.

Other smiles from the Budget are:
a) Pastries, cakes get cheaper. (My GF should not know this)
b) Surcharge on tea is done away. (My Admin guy should know this)
c) Excise duty on Vanaspati and vegetable oil is also cut. (Some relief for my mom)
d) Clothes get cheaper. (Don’t be surprised to see me shopping for my GF)
e) Exice duty on AC and tyres go down from 24% to 16%.
f) Imported second hand cars to cost less (I wish I had a mama in Dubai)
g) Medicines to get cheaper. (I can afford to fall sick now, anyways I have enough sick leave balance left)
h) Lots more guys… these were just a few to list.


The second side of the coin:
a) Cash withdrawal above Rs.10,000 per day to attract tax @10%. The intention might be to check the black money, but is definitely not a welcome move. Will be an administrative nightmare for banks.
b) Pay more for poison I mean, cigarettes, liquor, pan masala and gutka. Bidis exempt. (None is of my interest and likings, so I’m indifferent to this provision).
c) Your perks will get dearer with new tax on employers. In Tax terminology these perks are called Fringe benefits. (My company doesn’t give me any).
d) A rise in the securities transaction tax will make your stock market transaction more expensive. (This will pinch my small gains on stock market, shopping cancel).
e) Guys… there are more under this category also, but at times ignorance is bliss ;-)


These were some of the budget proposals along with my personal comments.
Hope this enlightened your knowledge to some extent atleast.