Budget 2005 has brought both joy and misery to taxpayers, particularly the salaried. Finance Minister P. Chidambaram has simplified income tax structures, and you have to pay less tax as a consequence. But while it's true that with the basic exemption limit being raised from Rs 50,000 to Rs 1,00,000, more people would fall outside the minimum taxable limit, the introduction of a couple of riders, such as doing away with standard deduction and the introduction of a fringe benefit tax (FBT), don't augur well for the salaried community. If anything, it threatens to increase its tax burden rather than provide any relief.The removal of standard deduction (up to Rs 30,000), which was available only to the salaried class, will hit hardest. That's because standard deduction was a substitute for expenses incurred while working (akin to the fixed percentage standard deduction available for repairs in rented-out properties), and doing away with it means the possibility that more people will qualify to pay income tax, particularly people with lower incomes, is very real. Says tax expert Kanu Doshi: "Doing away with standard deduction literally tends to suffocate the middle class as it provides extremely limited scope for tax planning." As for FBT, since it's the employer who is liable to pay 30 per cent tax on fringe benefits given to employees, it is likely that some benefits may be withdrawn. Though there's some confusion about the exact expenses that will be covered, it is certain that most perks given to employees (like your company phone at home) will be taxed. For the employer, transferring the value of these benefits to the normal salary would save them from paying FBT, but that would proportionately add to the tax burden of the employee, which is bad news for salaried people!
Courtesy: Priyanka Sangani
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