Amongst the various provisions of the Budget 2007-08, the following are some of the more significant ones that would directly affect the common man:
Basic Exemption Increase: Flattering to deceive
Yes, the basic exemption has been raised by Rs 10,000 for all categories of taxpayers. However at the same time, the education cess has also been increased. Both these cancel each other and the taxpayer comes back to square one. The cut off, as it were, is Rs 510,000, Rs 520,600 and Rs 893,000 for non-senior males, ladies and senior citizens, respectively.
To put it differently, those earning lower than the above-mentioned income levels would be marginally better off and those earning higher would end up actually paying more tax. Note that the highest tax rate has now climbed to 33.99%.
Stock Options: Expensive on both employer and employee
Stock options, now under Fringe Benefit Tax, will be taxed at 33.99%. The finance minister has gone on record stating that the authorities have yet to give details on how to determine the value of stock options and how to tax the same, yet, a plain reading of the law suggests that the difference between the Fair Maket Value and the Exercise Price will be taxed at 33.99% on the date of exercise.
Simultaneously, when the employee sells his stock option shares, capital gains would be applicable in the normal course.
Dividends become more expensive
Dividend Distribution Tax (DDT) on corporate dividends has been hiked to 15% from 12.5%. After surcharge and cess, the effective tax rate climbs to 16.995%
A couple of issues arise. Taxing corporate dividends does amount to double taxation. Dividends are declared by the company from its post-tax income. Now if the investor is taxed again (DDT is akin to taxing the investor ...