Income limit for top tax rate in India far lower than peers
28 Feb 2006
It is disappointing that the threshold income limit of Rs250,000 has not been increased when this limit is much higher in other countries, says Nikhil Bhatia*. In exclusive arrangement with CNBC. |
The Budget 2006 is without any major surprises and is relatively straight-forward. Considering the changes that were introduced in last year's budget, the finance minister has decided to tread cautiously and has proposed minor changes. No change in individual tax slabs For eg while an income of Rs250,000 and above will attract the highest rate of 30 per cent in India, in China the 30 per cent rate applies at income over approximately Rs2,600,000. In Korea, the top rate of 38.5 per cent applies on income exceeding approximately Rs 3,700,000. It is time Indian personal tax rates are aligned with international rates. This would allow more funds in the hands of individuals resulting either in increased consumption or savings, both of which are good for the economy. Fixed deposits – a tax deductible investment avenue Maximum limit hiked under pension funds There is therefore a greater flexibility in determining the saving avenues. At the same time, individuals earning a basic salary of approximately Rs835,000 and above will exhaust this limit of Rs100,000 in the provident fund contributions itself. Therefore savings in other investments even if eligible would be inconsequential from the tax perspective. Thus in the absence of a threshold for tax rates being increased, there is a good case for increase in the limits of Rs100,000 under section 80C to say Rs300,000 and have a separate limit for repayment of housing loans. Apart from this change, specific deductions which will continue to be available as earlier are: interest on housing loans, medical insurance premium, deduction for disabled dependents, loan on higher education etc. Long term capital gains only if you invest in NHAI, REC PAN may be mandatory on purchase of luxury items One by six criterion abolished Securities transaction tax hiked FBT on superannuation no more Now, the FBT levy will be only on employer's contribution to superannuation fund in excess of Rs.100,000 per annum per employee. This is a welcome relief to both employers and employees and it is expected that a large quantum of the employers' contribution will be spared from the levy. Now, companies can actually explore introducing the superannuation fund retiral benefit in their compensation structure as it meets the objective of significantly adding to employees' long term savings as well as being a reasonably tax efficient retiral scheme. With a large number of private insurance players in the health insurance market, it is proposed that any premium paid by an employer to cover health insurance of his employee or any reimbursement of health insurance premium paid by the employee for self/his family is not taxable as a perquisite provided the scheme is approved by the Insurance Regulatory Development Authority. Earlier only insurance schemes approved by the Central Government were eligible for such tax breaks. Overall, though an attempt was made to increase the flexibility in the investment avenues available to an individual, and not cause any additional tax hardship to an existing individual tax payer, there have been no specific changes or measures to alleviate the tax burden. *The author is Partner, BSR & Co. |