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Budget 2009-2010: Personal income tax (IT) related changes and impact on you

The budget for year 2009-10 has some minor tinkering as far as income tax goes. Here are the details.

For changes in budget 2010-2011, please read “Budget 2010-2011: More money for you due to Income Tax slab / bracket changes



The budget for the year 2009-2010 does not have many big-bang changes as far as personal income tax goes.

Here are the details of the changes, and an analysis of how it impacts you.

Highlights of the changes related to personal income tax (IT)

  • Increase in basic income tax exemption limit by Rs. 10,000 to Rs. 15,000
  • Removal of 10% surcharge on income tax
  • Increase in section 80DD deduction to Rs. 1,00,000 (from Rs. 75,000)
  • Section 80E coverage expanded
  • Fringe Benefit Tax (FBT) abolished
  • New Pension System (NPS) to remain under Exempt-Exempt-Taxed (EET) regime
  • Income tax return (ITR) forms to be simplified


Increase in basic income tax exemption limit

The basic income tax exemption limit – the amount of income upto which there is no income tax – has been marginally increased.

It has been increased by Rs. 15,000 for senior citizens (from Rs. 2,25,000 to Rs. 2,40,000), and it has been increased by Rs. 10,000 for all others (including female income tax assesses) (from Rs. 1,50,000 to Rs. 1,60,000 for men and from Rs. 1,80,000 to Rs. 1,90,000 for women).

There has not been any change in the other tax slabs / brackets.

(For the latest income tax slabs and rates, please check “Income Tax (IT) Slabs / Brackets and rates”)

The impact on you

If you are a senior citizen, you would be saving Rs. 1,500 in income tax every year. Otherwise, you would save Rs. 1,000.

(Want to know how to calculate the income tax payable by you? Check out “Calculating your income tax liability – first step to saving tax“)

Removal of 10% surcharge on income tax

For income tax assesses having income more than Rs. 10 Lakhs, there was a surcharge of 10% in the total tax payable.

This surcharge has been completely removed.

The impact on you

This would save large amounts for you if you have income greater than Rs. 10 Lakhs. The higher the income, the more you would be saving.

Examples

A male assessee having an income of Rs. 15 Lakhs would have paid a tax of Rs. 3,55,000 + Rs. 35,500 as surcharge (apart from the 3% education cess). Thus, he would be saving Rs. 35,500 in income taxes.

A male assessee having an income of Rs. 25 Lakhs would have paid a tax of Rs. 6,55,000 + Rs. 65,500 as surcharge (apart from the 3% education cess). Thus, he would be saving Rs. 65,500 in income taxes.


Increase in section 80DD deduction

Section 80DD of the IT act provides a facility of claiming a deduction if a person has a handicapped dependent.

(Please read “Have a disabled dependent? Save income tax using section 80DD” for all the details)

The upper limit of deduction available under section 80DD has been increased to Rs. 1,00,000, from the earlier Rs. 75,000.

The impact on you

Depending on the slab to which you belong, the saving can be upto Rs. 7,500.

Expansion in the coverage of Section 80E

The entire interest that paid on an education loan is deductible from the income under section 80E.

(Please read “Income Tax (IT) benefit of an education / study loan – Section 80E” for more)

This benefit was available only for education loans taken for graduate and post graduate (PG) courses in engineering, medicine and management, or for post graduate courses in applied pure sciences (including mathematics and statistics).

Now, the coverage of this section has been increased. Now, this section would cover all fields of studies – including vocational studies taken up after school.

The impact on you

If you have taken an education loan to pursue a course that was not covered till now, you would be able to claim this deduction. This can result in substantial tax saving.


Abolition of Fringe Benefit Tax (FBT)

The FBT was a tax that was hated by everyone, and had resulted in a lot of litigation. Finally, it has been abolished.

However, more clarity is needed on whether employee stock options (ESOPs) would have a perquisite (perk) tax.

The impact on you

This was a tax payable by employers for the fringe benefits provided to employees. Thus, it doesn’t impact you directly.

However, most private companies calculate your compensation on CTC (Cost To Company) basis. (Please read “Understanding the components of your salary and their taxation”)

If the company provided you a fringe benefit, and paid a tax on it, the company would have included the amount in your CTC salary.

Now, your employer would not be paying any FBT. This means that you can renegotiate your salary structure, and can get more money in hand!

New Pension System (NPS) to remain under Exempt-Exempt-Taxed (EET) regime

There was an expectation that the NPS would move to Exempt-Exempt-Exempt (EEE) regime, making it at par with PPF. This has not happened – NPS would remain under EET regime.

For more, please read:

The impact on you

Although promising, NPS remains slightly unfavourable due to its EET taxation.

Income tax return (ITR) forms to be simplified

It has been proposed that the income tax return forms (ITRs) would be simplified, starting with Saral II.

The impact on you

When implemented, this should make the task of filling and filing returns simpler for you.

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