Budget may give more in pocket, extract even more

New Delhi: Union Finance Minister P Chidambaram is very likely to give you some more money in pocket by way of raising the tax slabs in the forthcoming Budget, but at the same time he is also expected to make ways to suck that cash back into the government exchequer by slapping service tax on about a dozen new services.

What more, Budget predictions have also indicated that the rate of service tax could be increased from 12 per cent to 14 per cent in the forthcoming Budget.

In fact, the government was considering a proposal to raise the rate of service tax last year itself. But the idea was then dropped in view of high inflation.

With the rate of inflation under control for the past few months, there is a possibility that the Finance Minister might go ahead with this measure this time around.

As regards new services to be brought under the net, the Empowered Committee of State Finance Ministers has reportedly recommended at least six new services for inclusion in the list of taxable services from 2007-08 onwards.

Several other services are also likely to be brought under the service tax net, which already covers 100 services, the Business Standard reported on Friday.

According to the report, the new areas that are likely to be included in the service tax net include legal draft writing and stamp paper vending, unaided non-government schools and colleges, unaided non-government hospitals, amusement parks and similar attractions, coin-operated amusement machines and all other recreation and amusement services.

What this means is that in the next financial year you might be paying service tax on the school fees of your kids, on the medical bills at private hospitals or at almost every amusement activities that you pay for.

To tax all these services, the Finance Act 1994 is expected to be amended in the forthcoming Budget session.

Before this sour dose, the Finance Minister is however likely to raise the standard tax deduction limit for individual tax payers by 20 per cent to Rs 120,000, which will allow a taxpayer to save up to Rs 2,000 in taxes every year.

The personal income tax exemption limit is also likely to be raised to Rs 1.25 lakh a year from the current level Rs 1.1 lakh for men.

At the same time, Chidambaram is also expected to do some tinkering with the indirect taxes on consumer goods in order to boost consumption.

There are suggestions that the duties consumer electronics goods should be cut to 12 per cent from 16 per cent. Duties on life-saving medicines used in the treatment of cancer, AIDS and diabetes are also likely to be exempted.