A deduction of Rs. 2,000 as tax credit given in yesterday’s budget is being seen as an exemption of Rs. 2,20,000/- for those who earn up to Rs. 5,00,000/-, but the reality is a bit different on the calculation of tax payable.
An example can show how much in reality will the tax be saved.
Example : A person working and having a total annual salary of 4,50,000, without taking any deduction under Sec 80C or other sections, the tax liability will be :
Net Salary : Rs. 4,50,000
Exemption Limit : Rs. 2,00,000
Net Taxable Income : Rs. 2,50,000
Tax Liability :
1. Tax Amount : Rs. 25,000 (2,50,000*10%)
2. Education Cess : Rs. 750 (25,000*3%)
Tax Payable : Rs. 25,750 (25000+750)
Tax Credit : Rs. 2,000
Net Tax Payable : Rs. 23,750.
This is what Mr. Chidambaram has given in reality.
Whereas if the exemption would have been Rs. 2,20,000, the tax payable in the above example would have been as follows
Tax Liability :
1. Tax Amount : Rs. 23,000 [(4,50,000-2,20,000)*10%]
2. Education Cess : Rs. 690 (23000*3%)
Net Tax Payable : Rs. 23,690
Thus in reality we loose out Rs. 60 (23,750-23,690), where as if you see The Finance Minister as per his calculation has earned
Benefit to Government (approx) = 60 X 1,80,00,000 = 1,08,00,00,000
has the exemption limit increased only for the lower bracket the government would have lost in total approximately One Hundred Eight Crores. This is just a mere approximation.
