Written in : April 2000

The much-awaited Budget is out. This Budget has been presented in a politically reasonably stable environment – an excellent reason to avoid populist measures. It was also presented when there was hunger for more reforms. We were even conditioned for ‘harsh’ measures. Despite all this, the government let us down by avoiding to take forward the reforms process. What a shame! There is so much pending to be done if we are to meet the new millennium challenges head on and there is not much initiative for all this.

Let us see what the Budget offers you tax-wise.

The thrust of the government has been to continuously reduce various tax exemptions, deductions and benefits available while reducing tax rates. This Budget makes a major beginning in this directions. Brake is being applies to various tax-breaks. We shall see some in this article and some others later on.

The threshold limit (basic exemption limit) upto which there is to be no tax remains the same as before. Even the tax rates have remained the same. We should admit that the Indian tax rates are low, compared to international rates.

It was expected that the Union Surcharge would be abolished. There is a surcharge of 10% of the tax if the income is in excess of Rs.60000. However, there is to be an increase in the surcharge from 10% to 15% if the income is in excess of Rs.150000. That is, those who pay tax at 30% will pay a surcharge of 4.5% making the total tax rate at 34.5%.

The new rates (inclusive of surcharge) are:

• Upto Rs.50000:
• Rs.50000 – Rs.60000: 10%
• Rs.60000 – Rs.150000: 22%
• Rs.150000 and above: 34.5%

The rates of tax payable by firms and companies remains the same at 35% plus 3.5% at 38.5%.

Senior citizens – those of you who have reached 65 and are above – are entitled to pay tax of upto Rs.10000 less than the others. This is by way of a special tax rebate eligible to you. This rebate will, from next year, be enhanced to Rs.15000. Thus, if your tax works out to above Rs.15000, you would deduct Rs.15000 and pay only the balance amount as tax. That is an attractive rebate.

A new rebate, exclusively for women, is now introduced. This allows women taxpayers to claim a rebate of upto Rs.5000 from their tax. This is allowed to all women taxpayers, regardless of their age. However, a senior woman taxpayer will not be allowed to claim both the senior citizens’ rebate and this rebate

All taxpayers are entitled to a tax rebate under section 88 of 20% of the savings / investments made by us in specified items. This rebate, by and large, remains the same. However, a few changes are offered.

Till now housing loans repayments of upto Rs.10000 were entitled to a rebate of 20%. Hereafter, this amount is increased to Rs.20000. This is done without increasing the limit of Rs.60000 available under the section.

While on housing, let us look at another tax break offered for housing. You are entitled to deduct upto Rs.75000 of interest paid during a year from your income from house property, if the loan were taken by you after 1.4.99 and before 31.3.2001 and the house were completed before 31.3.2000. This period is now extended to 31.3.2003. This is a most attractive deduction and you should make sure to get it in case you are eligible.

There are two highly attractive tax exemptions available in case you earn long term capital gains. These – through sections 54EA and 54EB – allow you to invest amounts in specified securities including units of mutual funds etc and get tax exemption on capital gains.

These two exemptions get the axe for all sales made after 31.3.2000.

A new exemption is being offered which will allow you to invest in specified securities of only two bodies: NABARD and National Highways Authority. The idea is to channel the investment in rural and infrastructure sectors. Let us see the nature of securities being issued and the terms to understand how attractive it will be.

We shall continue our discussion in the subsequent articles.