Change in Tax Rates

The Finance Bill, 2008
has made significant changes to the tax rates applicable to an individual,
Hindu Undivided Family, association of person and body of individuals whether
incorporated or not and every artificial juridical person. The threshold limit
for these entities has been increased from Rs. 1,10,000 To Rs. 1,50,000. The
tax rate applicable for income exceeding Rs. 1,50,000 to Rs. 3,00,000 shall be
10 per cent and for income exceeding Rs. 3,00,000 to Rs. 5,00,000 shall be 20

After crossing 20000 levels, Sensex is hovering around 14000 levels in a short span of about 2 months; one of the steepest falls seen in the history. It is touted as one of the worst financial crisis after independence in the history of share markets.

The root cause of this fall is said to be the sub-prime crisis in US, which has triggered the fall. This crisis has seen many banks failing since the 1930s. The crisis is being attributed to bad lending, bundling of mortgages leading to financial crises.

Did you fail to deduct TDS at source, or deposit the income tax correctly or made a mistake filing the return? Under the provisions of Income Tax Act, while an Assessee is supposed to pay regular income tax due, he is also made to pay penalty for such default.

This year is election year and the last budget this Government would be presenting. What this budget would present to a common man?

Before guess-estimating lets have look on various ruling factors:

1.    The Ruling Congress would be in minority in Rajya Sabha in April because of expiry of term of some members.
2.    Congress has lost most of the state and Bye elections.
3.    US recession and its likely impact on Indian markets.
4.    Rise in value of rupee hitting Indian exports

The financial year 2007-08 is about to end, and if you have not made investments for planning your income tax, time is running out.

I have come across few people, who feel, should they invest in tax savings scheme or rather pay income tax?

To my mind, answer is clear. In Indian context, we do need some savings as we have to take care of old age problems and other contingencies. So some savings are must, and Income Tax savings provide a sort of compulsory way to save and one must save to the extent of savings allowed.

To discharge specific responsibilities, often employers allow certain additional allowances as conveyance, entertainment, periodicals etc to help employee discharge duties efficiently. Insurance companies generally allow higher conveyance allowance to help an employee meet additional expenditure incurred for field duties.

With budget ahead, markets are expected to be volatile. Every statement that comes from south block would have effect of either dampening the markets or lifting it to new highs. Especially, this year, when expectations from budget are quite high, budget has to be exceptionally market friendly to keep markets spirits high.

Mostly when you claim a deduction and the same is denied by Assessing Officer, Assessing Officer seeks to levy penalty for concealment. In one such case of Eicon International (P.) Ltd, Assessee filed return claiming deduction u/s 80HHB.

Assessing Office in absence of requisite evidence regarding various conditions to be met for a allowing deduction under section 80HHB, found claim to be not bona fide and accordingly, while making assessment order, also levied a penalty under section 271(1)(c).

So, March approaching, and it is time to plan savings for income tax purposes. You need to invest for tax savings purposes in investments that qualify for deductions under Sec 80 C.

 As against earlier years, not many avenues are left to plan income tax on salary by “classifying” the salary under different heads. However some types of allowances as HRA; conveyance; Medical reimbursement still come handy to save income tax, which an employee must use to minimize his tax liability.