Starting this article, let us understand what the Budget means to us in terms of income taxes. There are various very welcome provisions in the Budget for you and equally obnoxious ones which were not obvious in the FM's speech.
All changes we discuss shall be applicable from the current financial year, i.e.assessment year 1999-2000. However, there are some changes which are effective earlier and I shall mention them specifically. Watch out for them.

There is no change in tax rates for firms, companies or for capital gains.

Standard Deduction

Currently, salaried taxpayers are entitled to a standard deduction of 1/3rd of salary  income or Rs.20,000, whichever is less. This limit is proposed to be raised to Rs.25,000  only for those taxpayers whose salary income is Rs.1,00,000 or less. Taxpayers earning more than Rs.5 lakhs as salary income will, however, not get any standard deduction.
 

Reimbursement of medical expenses by an employer to an employee upto Rs.10,000 is currently exempt of tax. This limit is now proposed to be raised to Rs.15,000.  The reason given is: 'in order to meet the rising cost of medical treatment and to mitigate  the hardship faced by salaried taxpayers'.

I have time and again wondered why it is only the salaried taxpayers who should get tax  breaks and not others. Why, for instance, should a self employed person not be entitled  to any tax breaks for medical expenses is beyond me, and reason.

This again, I suppose, is because bureaucrats are salaried employees and legislate for themselves. Otherwise, the tax law would not have been so lopsided toward salaried  taxpayers and similar breaks would have been offered to all.

TDS

Salaried taxpayers had another problem. If they had loss from house property - a likely scenario in cases of self occupied houses where interest is paid - employers were not allowed to adjust such losses against salaries paid and reduce deduction of tax at source.

Such an adjustment will henceforth be possible based on information given by the employees.

House Property

While computing the income from house property, a deduction equal to one-fifth of the annual value of the property is allowed for repairs and collection of rent. This deduction - a standard deduction for house properties - will now be up to 25% from 20%.

Owners of self occupied house properties were eligible to a deduction of Rs.15,000 toward interest paid on loans for house construction. This limit will now be Rs.30,000. Currently, loss from house property is not allowed to be carried forward for set-off against income arising in subsequent years. The Budget proposes that loss from house property will now be allowed to be adjusted against income from other heads. If, after adjustments, there continues to remain a loss under the head house property, it shall be allowed to be carried forward and adjusted against income from house property in the next eight years.

Rents paid

A few years back we had a deduction for non-salaried employees for rents paid. This was withdrawn subsequently. This Budget proposes to re-introduce the deduction as a relief for those taxpayers who pay rent on houses occupied by them for their residence.

This relief will be available if the rent paid is more than 10% of total income. The deduction allowed will be Rs.2,000 or 25% of the total income, whichever is less. This benefit will be available effective assessment year 1998-99, that is, for the financial year ended on 31.3.1998. Remember to take advantage of this when you file your returns this month or later on.

The irony is that when you file your returns, the Budget will not have become law. And  when it becomes law, you would have filed your returns.

Charitable Institutions

Medical and educational institutions, so long as they were carried on for philanthropic purposes and not for profit, are currently totally exempt of income tax on their surpluses. They were not required to be registered with the Commissioner of Income Tax, nor were they required to comply with any conditions about their incomes, accounts, investments etc.

This Budget proposes to remove such exemptions totally and place such institutions in the same position as ordinary charitable institutions.

Ordinary charitable institutions have to comply with several conditions to get tax exemption on their incomes: they are required to be registered with the tax department; their funds should be invested only in some specific ways; they must utilise most of their income during the year itself toward the objects of the trust etc.

Some of these conditions are wholesome - like the requirement of getting accounts audited, of getting registered with the tax department etc. However, some conditions are often too stifling and many schools, colleges and hospitals are not likely to find them palatable.

Perhaps it is time some conditions applicable to all charitable institutions are diluted and the anagers of such institutions are given more elbow room to earn from a variety of sources and use them for public good. The primary, and only, consideration should be that it is only public good that is served and charities do not become facades, or fronts, for private benefit.

Salaried persons can calculated their income tax through a small application given below. We have also developed a full Income tax wizard which will calculate, and suggest the savings and ways to use money in more fruitful way. This is a shareware which can be ordered by sending a email to Mrs Juhi Chaubey