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Reality check: Difference of Re 1 will turn tax liability from zero to Rs 13,000!

According to the Budget document placed in Parliament, the government has not raised the exemption limit for taxpayers from Rs 2.5 lakh to Rs 5 lakh, but has just made changes in the tax rebate under Section 87A of the Income Tax Act, which earlier provided a rebate of Rs 2,500 for those with net taxable income up to Rs 3.5 lakh.

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Piyush Goyal

New Delhi, Feb 6 (IANS) After the latest tax norm changes, proposed in the Interim Budget, taxable annual income up to Rs 5 lakh will get full tax rebate as Finance Minister Piyush Goyal announced in his Budget speech. But exceeding the net taxable income even by a single rupee beyond Rs 5 lakh would result in a tax liability of Rs 13,000 for taxpayers.

According to the Budget document placed in Parliament, the government has not raised the exemption limit for taxpayers from Rs 2.5 lakh to Rs 5 lakh, but has just made changes in the tax rebate under Section 87A of the Income Tax Act, which earlier provided a rebate of Rs 2,500 for those with net taxable income up to Rs 3.5 lakh.

The government has simply increased the rebate to Rs 12,500 — the equivalent of 5 per cent tax on the Rs 2.5-5 lakh slab — and the eligibility criterion for claiming the rebate to Rs 5 lakh from Rs 3.5 lakh.

Thus, for a person with a tax liability up to Rs 12,500, it becomes zero after the proposed rebate. But if the liability is beyond that, he/she will have to pay the entire tax amount without the rebate — beginning from the threshold limit of Rs 2.5 lakh.

While a person with taxable income up to Rs 5 lakh will have to pay zero tax, the tax liability will be Rs 13,000 — Rs 12,500 as income tax plus Rs 500 as health and education cess — if the income increases to Rs 5,00,001.

This complicates matters for taxpayers whose taxable income lies in the margins of Rs 5 lakh as any increment that takes it beyond Rs 5 lakh would result in a financial loss of Rs 13,000, instead of increasing their incomes. Even an increment of Rs 13,000 per annum (assuming their previous income was exactly Rs 4,87,001) would only help a taxpayer just break even.

This is in contrast to what would have happened had the government taken the other route and raised the income tax exemption limit from Rs 2.5 lakh to Rs 5 lakh. Since India follows a progressive taxation system, any income beyond Rs 5 lakh would have resulted in 20 per cent tax only on the amount by which the income exceeded Rs 5 lakh.

Thus, if the exemption limit would have been raised a taxable income of Rs 5,20,000 (after all deductions and a standard deduction of Rs 50,000) would have resulted in tax liability of only Rs 4,000 (plus Rs 160 as cess). But the rebate system as introduced in the Interim Budget would result in a liability of Rs 16,500 (plus Rs 660 as cess).

However, a taxpayer with even an annual gross income beyond Rs 5 lakh — and even up to Rs 9-10 lakh — can reduce his/her tax liability to zero by making prudent investments and claiming prevalent income tax deductions, like insurance, interest on home loan, education loan, medical expenses and other expenditures.

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Markets open on positive note

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Sensex Nifty Equity

Mumbai, Feb 20: The 30-scrip Sensitive Index (Sensex) on Wednesday opened on a positive note during the morning session of the trade.

The BSE Sensex opened at 35,564.93 before touching a high of 35,581.14 and a low of 35,520.21.

It was trading at 35,528.69 up by 176.08 points or 0.50 per cent from its Tuesday’s close at 35,352.61.

On the other hand, the broader 50-scrip Nifty at the National Stock Exchange (NSE) opened at 10,655.45 after closing at 10,604.35.

The Nifty is trading at 10,656.25 in the morning.

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PF funds’ investment in IL&FS bonds have no government guarantee: Finance Ministry

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IL&FS Financial Service

New Delhi, Feb 19 (IANS) The provident and pension fund trusts that invested in the IL&FS bonds now fear loss of money as the debt-ridden company’s bonds are unsecured debt, and the Finance Ministry says superannuated bonds do not carry any government guarantee and all such instruments have to face all market-related risks.

“Since these are investments in bonds, the government does not ensure any guarantee on them as such and if these are invested in stock markets, they carry the market risks as applicable. It is between the bond issuer and bond holders…,” the Finance Ministry said in response to IANS queries.

Thousands of crores of money of more than 15 lakh employees of both public and private sector companies have exposure to IL&FS bonds.

However, queries sent to the EPFO Commissioner and Labour Minister Santosh Gangwar remained unanswered.

Over 50 funds that manage retirement benefits of over 15 lakh employees have exposure to IL&FS. PF trusts of state electricity boards, public sector undertakings (PSUs) and banks are among them. The provident and pension fund trusts have filed intervening applications in the National Company Law Appellate Tribunal (NCLAT) stating that they stand to lose all the money since the bonds are under unsecured debt.

Usually, retirement funds have a low-risk appetite and invest in “AAA” rated bonds (which IL&FS bonds used to be once upon a time) and get assured returns with low interest rates.

The worries of pension and provident fund trusts come from the classification of IL&FS profiling its companies as to which can meet the dues obligations. Many important trust managing funds of PSUs like MMTC, IOC, Hudco, SBI and IDBI are among those filing petitions. From private sector, HUL and Asian Paints are among the petitioners.

IL&FS is currently under resolution process at the National Company Law Tribunal (NCLT). The process will decide under Section 53 of the IBC the order of priority for distribution of proceeds of the process.

The beleaguered company has informed the NCLT that of the 302 entities in the group, 169 are Indian companies, out of which only 22 are emerging as those which can meet all obligations (green), while 10 firms can pay to only secured creditors (Amber). There are 38 companies of IL&FS (red) which cannot meet any obligations of payment, and 120 entities are still being assessed.

These PF and provident funds trusts are worried that if payment is limited to secured creditors, then only financial creditors like banks will receive the dues while unsecured bond-holders will be get any payments.

IL&FS bonds attracted investments by PF trusts as it had the shareholding of SBI and LIC giving its bonds the comfort factor.

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Sachin Bansal invests Rs 650 crore in Ola

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Bengaluru, Feb 19 (IANS) Internet entrepreneur and Flipkart co-founder Sachin Bansal has invested Rs 650 crore, or about $92 million, in ride-hailing platform Ola in his personal capacity as investor, the company said in a statement on Tuesday.

This investment is part of Ola’s larger Series J funding round. It is also the largest investment by an individual in Ola to date, it said.

“Ola is one of India’s most promising consumer businesses that is creating deep impact and lasting value for the ecosystem. On one hand, they have emerged as a global force in the mobility space and on the other, they continue to build deeper for various needs of a billion Indians through their platform, becoming a trusted household name today,” Bansal said.

He further said he has known Ola founder Bhavish Aggarwal as entrepreneur and friend over the years and that he has great respect for what he and the team at Ola have built in 8 years.

“We are extremely thrilled to have Sachin onboard Ola as an investor. Sachin is an icon of entrepreneurship and his experience of building one of India’s most respected businesses ground up, is unparalleled,” Ola CEO Bhavish Aggarwal said.

Ola integrates city transportation for customers and drivers onto a mobile technology platform ensuring convenient, transparent, safe and quick service fulfilment, the statement added.

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