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Budget 2008 – Impact of Income Tax Slab / Bracket Changes on You

This article illustrates the positive impact of the changes made in the personal income tax slabs / brackets in the Budget 2008.



In the budget of 2008, the finance minister P. Chidambaram has
proposed changes to the slabs for personal income tax. Although the rate of
income tax for each slab has not been changed, the increase in the limit of
each slab would result in a very significant saving in the income tax for >ALL
taxpayers.

(Ready to file your income tax return, but confused which form to use? Please read “Income Tax (IT) Return Filing – Which ITR form to use?“)

(Confused about filling the income tax return form – ITR? Want step by step guidance, and a video tutorial? Please read “How to fill Income Tax Return Form 1 (ITR1)“)

Proposed Income tax
slabs for FY 2008-09:

>

Rate

Income

Men

Women

Senior
Citizens

0%

Less than
1,50,000

Less than
1,85,000

Less than
2,25,000

10%

1,50,001
to 2,50,000

1,85,001
to 2,50,000

2,25,001
to 2,50,000

20%

2,50,001
to 5,00,000

2,50,001
to 5,00,000

2,50,001
to 5,00,000

30%

5,00,001
and above

5,00,001
and above

5,00,001
and above

Income tax slabs for
FY 2007-08:

>

Rate

Income

Men

Women

Senior
Citizens

0%

Less than
1,10,000

Less than
1,45,000

Less than
1,95,000

10%

1,10,001
to 1,50,000

1,45,001
to 1,50,000

NA

20%

1,50,001
to 2,50,000

1,50,001
to 2,50,000

1,95,001
to 2,50,000

30%

2,50,001
and above

2,50,001
and above

2,50,001
and above


Impact of this change

This change in slabs for personal income tax would positively
impact ALL taxpayers.

The table below illustrates the impact of this step – it has
the income tax calculated for various income levels as per the old and new
slabs. This calculation is for a male assessee who is
not a Senior Citizen, but the saving would be more or less same even for women
and Senior Citizens.

>

Income

Tax
FY07-08

Tax
FY08-09

Saving
in Tax

1,00,000

0

0

0

1,50,000

4000

0

4000

2,00,000

14000

5000

9000

2,50,000

24000

10000

14000

3,00,000

39000

20000

19000

3,50,000

54000

30000

24000

4,00,000

69000

40000

29000

4,50,000

84000

50000

34000

5,00,000

99000

60000

39000

More than
5,00,000

-

-

39000


Analysis

  • A tax
    payer at ANY income level would benefit from this change
  • The
    benefit is relatively smaller at lower incomes, and increases as the
    income increases
  • The
    maximum benefit is for people earning Rs. 5 Lakhs per year or more – these
    people would save Rs. 39,000 in income tax

Thus, the finance minister has put more money in our hands. So,
go ahead and spend it. But don’t spend it all – don’t forget to invest a decent
portion of it!

Happy investing!

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