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Money > Business Headlines > Report November 18, 2002 | 1324 IST |
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Kelkar plan adds to cash in hand
Our Economy Bureau in New Delhi Vijay Kelkar's recommendations on tax rates leave a higher disposable income at the hands of taxpayers, notwithstanding the elimination of standard deduction and exemptions on small savings. However, tax experts claim this can happen only if assesses post-implementation of the Kelkar rates avoid ploughing back a significant part of their incomes into savings schemes as they do under the present regime. According to experts, the case can be illustrated by assessees whose taxable income is below Rs 200,000, and who account for a significant percentage of the tax net.
Consider a taxpayer with a gross salary of Rs 120,000 a year. After standard deduction, his taxable salary is Rs 90,000. Suppose, his income from other sources of Rs 2,000 is deductible under Section 80L, and he further saves Rs 26,500 in saving schemes, he claims a 20 per cent tax rebate of Rs 5,300. The tax payable, with a 5 per cent surcharge over the rates prevalent now, comes to Rs 1,785. While for the taxpayer, the cash inflow was Rs 122,000, his cash outflow, including that on savings schemes and tax paid, turns out to be Rs 28,285, leaving Rs 93,175 in hand. Now consider Kelkar's suggestions implemented on the same Rs 120,000 gross income. In this case, since savings schemes do not yield any tax rebate, the assessee invests Rs 10,000 under LIC annuity schemes, which are fully deductible, and Rs 12,000 in pension schemes carrying 20 per cent rebate. His tax outflow is thus limited to Rs 22,000 leaving a disposable income of Rs 100,000, higher than what it is in the current regime. The same is the case for an assessee in a taxable income range of Rs 150,000-200,000, as shown in the table. But tax experts are quick to point out that the investments in the two cases are totally different. Disposable income will definitely come down if savings are high. ALSO READ:
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