Uday Chatterjee takes a look at Budget 2004-05 and what it holds in store for the salaried Joe

Contrary to popular perception, the salaried class hates to pay taxes. After all, they to are humans. This class is however forced to pay tax as it is deducted at source from their income. This class is the only one in the entire tax paying fraternity that is fully tax compliant and it is for this reason alone that they deserve a break.

They got a welcome break today when finance minister P Chidambaram in his budget speech announced that the tax exemption limit is being raised from Rs 50,000 to Rs 1 lakh. Further, there has been no change in the tax rates except a 2-per cent education cess, which will be charged to all taxpayers.

The measure will give relief to 1.4 crore assessees who will now be out of the tax net. The minister expressed his inability to give more relief or relief across the board, in the current budget, but he promised to revisit the subject if the compliance improves.

The hike in the exemption limit is in line with the Kelkar Committee''s recommendations on tax reforms. A point to note is that the Kelkar Committee had recommended that the exemption limit be raised from Rs 50,000 to Rs 1 lakh and at the same time withdraw all incentives like standard deduction, incentives on housing loans etc. Chidambaram has not withdrawn the incentives and that should bring more cheer to the salaried class.

The salaried class comprises of the low, middle and high-income groups. Among these, the low and the middle income group suffer from a lack of clarity. A large majority in these groups are simply unaware or just do not understand the benefits that accrue from the incentives.

For example, which sane person can understand a provision which is worded as: "Under section 80D on account of payment of medical insurance premia made by the employee as explained on page 211 [Vide circular No 13, dt 23-12-2002. Refer 259 ITR (St.) 9-31]?"

Apart from section 80D, there are sections 80CCC, 80DD, 80DDB, 80E, 80G, 80 GG and 88C which are cached in equally vague language which offer incentives to the salaried taxpayer. Thus it is only taxpayers from the high income group who can avail the benefits of incentives by hiring an accountant for deciphering the tax sections and number crunching.

A former chairman of the central board of direct taxes (CBDT) remarked on a recent television show that although the tax exemption limit was Rs 5,000, with astute investments in incentives a salaried person could avoid paying tax up to a limit of Rs 1,20,000. Being a former chairman of CBDT, he should know. And by that count, today, the salaried taxpayer should be able to avoid paying taxes up to a limit of Rs 1,70,000.

The tax proposals specify that a person having an income exceeding Rs 8.50 lakh would be required to pay a 10 per cent surcharge on the total income tax payable after the rebate, and also the education cess.

For example, an individual with a taxable income of Rs 1 lakh (after standard deductions at the old rate) will not be required to pay any income tax, while a person having a taxable income of Rs1.50 lakh will now have to pay an income tax of Rs 19,380 (including the education cess). An individual having a taxable income of Rs 8.50 lakh will have to pay an income tax of Rs 2,33,580 (Rs 4,580 more than what he paid last year).

Family pensions received by widows, children and nominated heirs of members of the armed forces and the paramilitary forces killed in action will be exempted from income tax.

The benefit of Section 80DD and Section 80U is being extended to people suffering from autism, cerebral palsy and multiple disabilities.