Union Budget 2009-10: FM makes life less taxing, more saral

For the millions of working people stung by the rising cost of living and salary freezes or cuts, the Budget comes as a palliative, but not the cure that they hoped for. Individuals in the low-to-middle-income groups will save at least Rs 1,030 in tax, benefitting from the Rs 10,000 increase in the income tax exemption limit. Senior citizens will pay at least Rs 1,545 less. The filing of tax returns is also set to become simpler, particularly for the salaried, as the government plans to re-introduce ‘Saral’ forms.

But it is those with taxable income of over Rs 10 lakh that have gained more from the Budget. They benefit from the removal of the 10% income tax surcharge as well as the higher exemption level. As a result, their tax incidence at the highest slab has declined to 30.09%, from 33.99%. This is the first time in many years that the high-income group, the group that drives consumption of the mid-market to premium consumer goods and services, has got any concession from the government. It is meant to be a small step in the direction of reforming the tax structure to make it simpler.

However, a part of what this group has gained can be taken away by the government’s proposal to scrap fringe benefit tax (FBT) on employee perks and shift the burden to employees. As a result, employees would be taxed for contributions made to the superannuation fund.

Likewise, stock options would become taxable on the date of vesting. In both, individuals would pay taxes on benefits they have not received: the superannuation fund is received by an individual only on retirement while the benefits of a stock option can be enjoyed only when the stocks are sold.


The new form of taxation of the superannuation fund creates a situation where contributions as well as withdrawals are subject to tax. This goes against the accepted principle of taxing such savings only once, observed Kaushik Mukherjee, executive director, tax and regulatory practices, PricewaterhouseCoopers.

For those getting stock options, the person who sells the stock at lower than the vesting price, at least in theory, would have suffered a higher than warranted tax. “Ideally, the tax should become payable when the stock is sold,” said Vikas Vasal, executive director, tax, KPMG. That was the norm before former finance minister P Chidambaram introduced FBT.

Conversely, the change in taxation of stock options will enable expatriate employees to claim credit in their home country for taxes paid in India. In any case, the government needs to provide more clarity on the taxation of perks now that FBT is being scrapped.

The government’s plan to expand the scope of presumptive tax to all small businesses a with turnover up to Rs 40 lakh will ease the burden of maintaining books of accounts and ease their funds flow. This section of business can, from the next fiscal, pay 8% tax on their turnover at the end of the year instead of an advance tax. The measure may increase compliance as well as the tax base.

In the past, such measures have yielded results and there is no reason to doubt that more businessmen will not come forward to file self assessment.

The re-introduction of Saral forms, replacing the ITR forms, will also remove confusion tax payers face at the time of filing returns. At present, individuals are required to pick one of the four ITR forms, depend-ing on his sources of income to file income tax returns.