In a major relief to tax payers, the Union Budget for 2005-06 on Monday altered income tax brackets.
According to the Budget proposals, the level at which the surcharge of 10 per cent will apply is to be raised to Rs 10 lakh taxable income. Which means that there will be no surcharge up to Rs 10 lakh taxable income.
The threshold exemption level for women is fixed at Rs 1.25 lakh, while the exemption level for senior citizen would be fixed at Rs 1.5 lakh.
While the standard deduction is proposed to be removed, other exemptions are also proposed to be cleaned up.
Recognising the necessity to encourage savings by way of tax relief as an inducement to save, Chitambaram proposed to allow the tax payer greater flexibility in making savings/investment decisions.
Accordingly, every taxpayer is now to be allowed a consolidated limit of Rs 100,000 for savings, which will be deducted from the income before tax is calculated.
This means that if you earn, for example, Rs 300,000 a year and invest Rs 100,000, then you will be required to pay tax on only Rs 200,000.
All prevailing sectoral caps will be removed. The debate under Section 88 is being eliminated and Section 80L is being omitted to reflect the new regime.
However, deductions on housing loan interest; medical insurance premia; specified expenditure on disabled dependent; expenses for medical treatment; deduction in respect of interest on loans for higher studies; and deduction to a person with disability will continue to receive the same tax treatment as prevails today.