FM Pranab reduces tax for personal income

Finance Minister Pranab Mukherjee was not really expected to do much on the personal tax front this Budget. Largely because he had already signalled a move towards a new Direct Tax Code (DTC) from next year. But perhaps given the difficult times we live in and given the high rate of inflation and an almost zero increment year for salaried employees. He has decided to give Rs 50,000 worth of extra money through tax savings for those earning above Rs 5 lakh per annum.

The gain is much lesser for those below the Rs 5 lakh per annum level, but there is still something on the table. Add to this a new section that allows a deduction of upto Rs 20,000 on investments in infrastructure bonds, though it still remains to be seen what their tenure and returns structure would be, and would they be attractive for citizens. He could have simply given tax sops to infrastructure sector dedicated funds that would have also brought much needed equity money into this sector, but he has chosen not to.

While he could have hiked the Rs 1 lakh exemption under Section 80c, considering DTC in its current form proposes to hike it to Rs 3 lakh in any case, he has again chosen not to leave it untouched.

So what's the bottomline? I am giving you the money. Now you decide if you want to splurge or invest. I need money for India's infrastructure so I am playing a financial planner for you to the extent of Rs 20,000 of your investment. But other than that, I am not interfering. This is in essence what Mr Mukherjee is telling us.

So all the more reason for us to focus on our investments to make them generate better returns for us. As of now, equity investments above one-year remain tax free. We also have an assurance from the Finance Minister that he is looking into the DTC proposal of taxing the final returns on our investments and hopefully he will change that clause when the final code is presented. So for this year, the avenues of investments remain open. The choice is our's, to look at a short term tax saving or long term wealth.