Changes in Income Tax Laws for the financial year 2010 – 2011

The Financial Budget for the forthcoming/current financial year 2010 – 2011 is considered a great boon for all of us (Salaried class) The Finance Minister has come up with a lot of new changes in the taxation policies that will leave a lot of extra cash in the pockets of the salaried class even if they are going to get the same salary that they got in the previous financial year 2009 – 2010. Let us see the salient points that may affect our take home salary in this year.

1. Increase in Base exemption (Standard Deduction)
2. Change in Tax Slabs (% Changes)
3. Removal of 10% surcharge on Income Tax
4. Increase in 80DD section
5. Fringe Benefit Tax (FBT) is abolished

Let us take a detailed look at each one of these items.

Increase in Base Exemption Amount – Standard Deduction:

The Standard Deduction or the base portion of a tax payers salary that is exempt from tax has been increased by Rs. 10,000/- for all and by Rs. 15,000/- for senior citizens.

So the current Non Taxable Income is as follows:

Male Citizen – Rs. 1,60,000/-
Female Citizen – Rs. 1,90,000/-
Senior Citizen – Rs. 2,40,000/-

Change in Tax Slabs

One of the major contributors to additional take home salary for the salaried class is the change in the taxation slabs. The Finance Minister has significantly increased the tax slabs for the 10% and 20% slabs and hence people who were in the highest tax paying bracket in the previous financial year (09-10) would come down to probably the 20% slab this year. Below is the Revised slabs.

Male Citizen:

Salary Range	Income Tax %
Upto Rs. 1,60,000	Nil (No Tax)
1,60,001 to 5,00,000	10%
5,00,001 to 8,00,000	20%
Above 8,00,000	30%

Female Citizen:

Salary Range	Income Tax %
Upto Rs. 1,90,000	Nil (No Tax)
1,90,001 to 5,00,000	10%
5,00,001 to 8,00,000	20%
Above 8,00,000	30%

Senior Citizen:

Salary Range	Income Tax %
Upto Rs. 2,40,000	Nil (No Tax)
2,40,001 to 5,00,000	10%
5,00,001 to 8,00,000	20%
Above 8,00,000	30%

Removal of Surcharge on Income Tax:

Until the previous financial year there was an extra 10% surcharge on the income tax amounts for people with salaries above Rs. 10 lacs which has been completely removed

Increase in Section 80DD deduction:

As per the prevailing IT laws a tax payer who has a physically handicapped dependent, he can claim the medical expenditure for the dependent as tax exempt income. This limit has been hiked from Rs. 75,000/- per year to Rs. 1,00,000/- per year

Fringe Benefit Tax Abolished:

The Fringe Benefit Tax that resulted in extra taxes for employees in certain lines of work for claiming expenditure they incurred while on work has been completely abolished.

Impact on US – The Tax Payers:

The benefits for us the citizens in the salaried class is significant. Let us take a simple Example of Mr. X who earns Rs. 10,00,000/- annual income and calculate the taxes for the two financial years.

Assumptions: Exemptions under Section 80C – 1 lakh
He claims exemptions under section 80DD to the full extent
HRA @ Rs. 1,00,000/- per year
Medical Expenses @ Rs. 15,000/- per year
Transportation Expenses @ Rs. 9,800/- per year

As per Tax Slabs 2009 – 2010:

Total Salary = Rs. 10,00,000/-
Less Section 80 C = Rs. 9,00,000/-
Less HRA, Medical & Transport = Rs. 7,75,200/-
Less Section 80DD = Rs. 7,00,200/-

Net Taxable Salary = 7,00,200/-

Income Tax:
Upto Rs. 1.5 lacs = Rs. 0/-
Rs. 1.5 to 3 lacs (@ 10%) = Rs. 15,000/-
Rs. 3 to 5 lacs (@20%) = Rs. 40,000/-
Above 5 lacs (@30%) = Rs. 60,060/-

Net Income Tax: 1,15,060/-

Approximate Tax Deducted @ Source (TDS) per month = Rs. 9588/-

As per Tax Slabs 2010 – 2011:

Total Salary = Rs. 10,00,000/-
Less Section 80 C = Rs. 9,00,000/-
Less HRA, Medical & Transport = Rs. 7,75,200/-
Less Section 80DD = Rs. 6,75,200/-

Net Taxable Salary = 6,75,200/-

Income Tax:
Upto Rs. 1.6 lacs = Rs. 0/-
Rs. 1.6 to 5 lacs (@10%) = Rs. 34,000/-
Rs. 5 to 8 lacs (@20%) = Rs. 35,040/-

Net Income Tax: Rs. 69040/-
Approximate Tax Deducted @ Source (TDS) per month = Rs. 5753/-

Increase in Take Home Salary per month = Rs. 3835/-

Isn’t this a sizeable hike in take home salary given the fact that there is no hike in the annual income? It definitely is.

All the best!!!