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Budget '13-14: Impact On Direct Taxes

MARCH 01, 2013

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Mr. P. Chidambaram’s receent budget claims to be meant for the Aam Aadmi but to what extent the tax proposals care for him is another question. Let's try to examine it to find the answers.


As a relief for the middle class, a tax credit of Rs 2,000 has been mooted for individuals with taxable income of up to Rs 5 lakh. The loss of revenue by having this rather minor change is to be made good by the tax on the super rich. A surcharge @ 10% on tax payers earning more than Rs 1 crore has been introduced for one year. Apart from plugging the revenue gap, the surcharge will improve the Tax-To-GDP ratio and make growth more inclusive. Of course, the unwillingness to revise the tax slabs and tax rates may be taken to be financial prudence but the middle class expectations were otherwise.



The additional deductions from total income of the individual tax payer bring a bit of respite to the Aam Aadmi. The Rs 1 Lakh deduction for interest on a home loan up to Rs 25 Lakh for first home-buyers, over and above the existing Rs. 1.5 lakh on self-occupied house is welcome. The deduction is only for FY 2013-14 but any unutilized deduction can be claimed in the next financial year. Further, donations to the National Children's Fund will get full deduction from the total income as against the erstwhile 50 % deduction. The scope of tax deductions under the Rajiv Gandhi Equity Savings Scheme has been expanded and the income limit for eligibility has been raised from Rs 10 lakh to Rs 12 lakh. However, the complexity of the scheme remains a big dampener for new investors and the relief offered is too meagre to attract them..


The transfer of immovable property of up to Rs 50 lakh is now within the ambit of TDS (Tax Deduction At Source) provisions. All such transfers will now attract TDS @ 1% to be paid by the seller. However, all farm land has been kept outside its scope. Further, if a property is transferred at an inadequate price less than its stamp value, the difference will be taken to be income from other sources. The General Anti Avoidance Rules (GAAR) have been retained and the revised provisions will be effective from April 1, 2016. These measures are expected to widen the tax base even in a stable tax regime. The tax administration is to be made more efficient by including more banks in the e-payment of taxes. The proposal for the discharge of refund over Rs. 50,000 through refund banker system is again a good step. Further, the e-filing facility would be available for filing wealth tax returns and any return filed without paying the self-assessment tax will be treated as defective.


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