How you can save more money now

Finance Minister P Chidambaram seems to have got it spot on for the ruling coalition by pleasing everyone: from the rural farmers to the urban middle class. By giving everyone something to rejoice, the budget is truly an aam aadmi ka budget that leaves a smile on everyone's face.

Budget 2008-09 has definitely hit the right note for the middle class individual with a host of tax breaks in direct tax. The earlier tax slabs have been revised. A quick look at the revised slabs shows what an individual stands to gain.

Currently, an individual whose annual income is Rs 5 lakh (Rs 500,000) is liable to pay around Rs 99,000 in taxes. But after the revision of the tax slabs, the same person would end up shelling out only Rs 55,000, saving a neat Rs 44,000 or one month's salary in the process.

Women and senior citizens stand to gain a few more thousand rupees due to the extension of their respective base slabs. This move gives more money in the hands of an individual creating more disposable income. It will in effect boost the slowing FMCG sector; which has been witnessing a slowdown for quite sometime now.

However, when it comes to tax saving instruments, there have been limited changes under section 80C of the Income Tax Act. The current slab of Rs 1 lakh (Rs 100,000) remains untouched with only a few additions being made to tax saving instruments under this act.

Now, Senior Citizen Saving Scheme 2004 and the Post Office Time Deposit Account will be added to the basket of saving instruments under Section 80C of the Income Tax Act.

An additional deduction of Rs 15,000 is now allowed under Section 80D to an individual paying medical insurance premium for his/her parent(s) apart from the normal Rs 10,000 deduction for self.

This is a welcome change; especially for those whose parents are retired with no income of their own.

As mentioned before, there is something for all in this budget and senior citizens have not been left disappointed. Apart from raising the bar to Rs 2.25 lakh (Rs 225,000) and addition of the Senior Citizen Saving Scheme under section 80C, the Income Tax Act will be amended to provide that payments regarding reverse mortgage will not amount to 'transfer.'

Hence the stream of revenue received by the senior citizen will not be treated as 'income.' This means that the payments will not add to the tax liability of senior citizens availing reverse mortgage.

However, while the finance minister has given away sops with the one hand, it is only fair that take something with the other. While the tax breaks are a welcome move, the increase in short-term capital gains tax, from 10 per cent to 15 per cent proves to be a dampener for retail investors.

However, in a way, it is a good move as it urges the retail investors to invest for a longer term in equity instruments rather than engage in speculation. The tax on long term capital gains on equity remains nil as earlier.

If one optimally uses all the tax benefits extended, an individual earning up to Rs 3 lakh (Rs 300,000) may not be liable to any tax especially if he uses the provisions of Section 80C and 80D well.

If one owns a house bought using loan, an additional Rs 1.5 lakh (Rs 150,000) can be saved on the interest paid towards the house and up to Rs 1 lakh (Rs 100,000) can be deducted from the premiums paid under provisions of Section 80C of the Income Tax Act.

To conclude, the budget is quite good, catering to the needs of the middle class and providing a stimulus for growth and consumption in the country.

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