The Union Budget is one of the biggest events in the world of Business and Finance. And it’s not for nothing – every single individual in the country is affected either directly or indirectly by the Budget announcements.
The biggest directly effect is on your tax payments. Here’s how Budget affects your taxes:
1) Income Tax: Every individual who earns an income either through a salary, professional services or by running a business has to pay a tax. Exactly how depends on the source of the income and your tax slab. Individuals who earn less than Rs 2.5 lakh do not have to pay any income. Every Budget, the government announces changes in these Income Tax calculations – tax exemption limit, tax slabs, tax rates, or even tax rebates. These affect your tax liabilities. For example, in 2015, the government increased the tax rebate under Section 80C by Rs 50,000 to Rs 1.5 lakh. This allowed people to save as much as Rs 45,000 in tax.
2) Indirect taxes: You also pay taxes to the government indirectly through the goods and services you buy. Every product or service attracts taxes like Excise Duty, Import Duty, Service Tax or Value Added Tax. This tax is incorporated in the cost of the goods and services. So any change in the rates of these taxes makes the goods and services costlier or cheaper.
3) Corporate Taxes: Companies too have to pay tax on their income. This is called Corporate Tax. Certain companies also have to pay MAT or Minimum Alternate Tax. The government could also tweak these rates. For example, recently the government announced that Startups may be exempted from Income Tax for the first three-five years. The Budget could legitimise this announcement.
4) Tax Deducted at Source: Often, you pay income through Tax Deducted at Source (TDS). For example, banks may deduct TDS if your interest income exceeds a certain limit. Any change in this tax rate could also affect your tax outgo. Currently, TDS rate stands at 10%. Media reports suggest the Budget could this cut to 5%.
5) Capital assets: You also pay tax while buying and selling assets like shares and immovable property. These taxes vary with the asset. For example, you pay Securities Transaction Tax (STT) while buy or selling stocks. These tax rates could also be tweaked in a Budget if the government wishes. This could then affect your investment returns.
6) Capital gain: You can also earn through profits made by selling investments. This is called as ‘Capital Gain’. These attract taxes at varying rates. It also depends on how long you held these assets. The Budget often tweaks the Capital Gain Tax rates for various investments to encourage savings.
The government decides how it taxes its people. The Budget is where the government announces its tax policy. This is why every earning individual closely eyes the Budget.