The Union Budget of 2012 was unveiled by the Finance Minister in February this year. A mixed bag of reforms and recommendations, the budget on one side has brought about cheer to many, where as to certain others it has not gone down too well.

Significant tax reforms have been proposed, effective April 1, 2012. New Tax slabs, and raised exemption levels are some of the proposed changes. Here is a quick roundup of the key tax reforms and its impact on the tax payers.

Highlights of Income Tax Reforms

Though the Direct Tax Code could not be implemented this year, the new tax regime is definitely a positive step towards the implementation of DTC.

Changes in General Category

Unlike the previous years where there was a separate category for men and women, all tax payers now would come under a single category- the “General” category.

Increase in Basic Exemption

The budget brings relief for the salaried. The basic exemption limit has been raised from the previous Rs.1.8 lakhs to Rs. 2 lakhs now. With this marginal increase in the individual limits, you could expect to save a bit more on your income.

Benefit to Highest Slab Tax Payers

With the move from 30% to 20% under the new income tax slab, persons with income up to Rs 10 lakh per annum will save about Rs 1,030 and those earning more than Rs 10 lakh would have a tax liability coming down by up to Rs 20,599.

Relief to Senior Citizens

Though there hasn’t been changes in the exemption limits of senior citizens (above 60 years) very senior citizens (above 80 years), the relief comes in paying advance tax.

Senior Citizens will be relieved of the burden of paying Advance Tax for any income under the head 'Profits and gains of business or profession' and such senior citizen shall be allowed to discharge his tax liability (other than TDS) by payment of self-assessment tax.

Interest from Bank Accounts

A new income tax deduction has been introduced under Section 80TTA. This section allows a deduction of up to Rs.10,000 on interest earned from savings bank accounts. So the money that you accumulate in your savings account henceforth could fetch you much more.

Exemption on Health Check up

Extending the benefits under section 80D, a deduction of Rs.5,000 has been proposed for expenses incurred on preventive health chick ups of self, spouse, dependent children and dependent parents. You could now use your regular health checkups for a tax benefit.

The Rajiv Gandhi Equity Scheme

The Rajiv Gandhi Equity Scheme is aimed to promote equity investing. Investors with an annual income less than Rs. 10 lakh can invest in it, to avail a deduction of 50% on the equity investment. Investing through this scheme has a lock in period of 3 years. Up to, a maximum of Rs.50,000 could be invested under the scheme. For example, suppose you invest Rs. 50,000 in this scheme. A deduction of Rs 25,000 could be claimed.

Changes in Life insurance

All regular premium life insurance policies must have a basic sum assured of at least 10 times the annual premium of the policy, to be eligible for a tax exemption under section 80C and section 10(10)D.

Other Key Budgetary Proposals

• Tax Payers with foreign bank accounts or properties would have to furnish all details of their foreign assets, and peak balance during the year, after converting the value of the foreign currency in Indian rupee. In this regard, the ITR form has already been modified with a new column that would detail all foreign assets. Tax payers would have to furnish this in their return for assessment year 2012-13.
• Service Tax has been hiked from 10% to 12%, making services such as telephone calls, restaurants, beauty parlours, insurance and air travel more expensive.
• The Securities Transaction Tax (STT) has been reduced to 0.1% from 0.125%.