Now that the B -- day is over, it is time to look at the impact of budget on your savings, investments and tax planning.

Tax talk

Let us first do a reality check on whether you gain anything from the new income tax provisions, which increased threshold limits, after the additional education cess of one per cent.

If your income is between Rs 110,000 to Rs 150,000, the tax earlier was Rs 5,100 and now it's Rs 4,120, a saving of Rs 980.

If your income is between Rs 150,000 to Rs 250,000, the tax earlier was Rs 25,500 and now it's Rs 24,720, a saving of Rs 780.

If your income is between Rs 250,000 to Rs 500,000, the tax earlier was Rs 102,000 and now it's Rs 101,970, which means a saving of just Rs 30.

But, after your income crosses Rs 500,000, you no longer save a wee bit, even. In fact you pay more than what you did prior to the budget!

For example, if your income is Rs 10 lakhs, the tax earlier was Rs 280,500; but now it's Rs 282,117, which means you are poorer by Rs1,617 as compared to the last year.

Another thing is that though the finance minister has increased the threshold exemption limit by Rs 10,000 and the relief is Rs 1,000 in actual terms, your tax relief comes to less than Rs 100 per month.

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The third important fact is that senior citizens, for whom threshold exemption limit has been increased from Rs 1,85,000 to Rs 1,95,000, after cess calculations do not get a relief of Rs 2,000, but less than that amount.

TDS moves

The TDS limit going up from Rs 5,000 to Rs 10,000 on fixed deposits would allow you to keep more money in banks and post offices.

But do remember that this is possible only from June.

To gain maximum advantage, keep up to Rs 10,000 in different branches of the same bank or different banks. Also, remember the TDS exemption facility is not available for co-operative banks, which do not have banking as their main function and also for the non-banking financial companies.

So, if you want to take advantage of the hike in TDS limit better put your money in public sector or private banks.

A senior citizen can now keep a little over Rs 1 lakh in a bank branch or post office without filing Form 15H, as Section 194A has been amended, as per the new budget proposals.

Advantage education loans

As Section 80E has been changed, you can claim tax deduction on interest paid for education loan/s of son/s or daughter's.

Now, it is also possible to take an education loan for yourself, or your spouse and not only for your child/children. But, all the study tax deductions again are possible only from April 2008.

Self-employed professionals beware

All self-employed professionals like architects, doctors, engineers, accountants, advertising people and interior decorators have to pay double TDS than they were paying earlier.

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It has been hiked from 5 to 10 per cent, that is, if a person earns Rs 2 lakhs, the TDS stands at Rs 20,000, now. As this amount (Rs 20,000) is also threshold limit for TDS, the professional can't claim tax breaks and pay her/his TDS, as before. S/he has to pay higher tax and wait for a refund.

The consultant, who earns less than Rs 8 lakh a year, has comforting news because of the removal of service tax.

Mutual fund fundas

Plump for mutual funds that deal with shares from the infrastructure, capital goods and construction sector, as they are poised to ride high due to the government's emphasis on strengthening infrastructure.

Overseas options have also found favourable mention. Now you can directly invest in stocks or bonds of foreign countries through your mutual fund.

Franklin Templeton India and Principal Punjab National Bank are such mutual funds already offering investors the option to invest overseas. Kotak and HSBC are also lining out such products to suit your needs.

Fixed maturity plans (FMPs), of mutual funds are a risk-free bet after this budget, whichever way the pendulum swings. For tenures of more than a year, they give higher return than a bank fixed deposit.

On redemption, the investor can also use benefit of indexation for capital gains that is denied to bank deposits. A tax of 10 per cent on capital gains is very economical, compared to income tax one.

The fixed maturity plan invests in bonds, government papers, corporate bonds and money market instruments of the same maturity. That is, a 3--year FMP will invest in a 3--year bond, thus giving returns equal in value to market price, neutralising the risk of inflation.

This is what indexation is all about. Your returns are linked to the rate of inflation. In a way indexation protects investors from rising inflation.

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The securities transaction tax has not been tinkered with. It means you continue to pay lower taxes for investment in shares through a mutual fund.

However, a mutual fund portfolio manager is now burdened with the service tax. He may pocket more from you, the investor. That is, the increase in service tax will be passed on to the investors as some or the other expense.

Is there anything safe and sound?

Your favourite investments like the Public Provident Fund (PPF), Post Office Monthly Income Scheme (MIS) and even mutual funds are still out of exempt-exempt-tax (EET) range. Hence, you can invest in such schemes without the fear of tax.

ESOP alternatives?

ESOPs are pushed in the fringe benefit tax net this year, but employers can think of alternative methods of compensating their employees without having to pay any tax.

The stock award scheme can be initiated, which factors in real market value of shares, not 'perceived value'. There can be profit sharing, another mode, where employees do not primarily invest in employers' securities.

Diagnose your medical plans properly

Though more insurance companies are anticipated to provide medical schemes for aged after the budget, read them carefully.

For example, the biggest medical insurance policy for aged, namely National Insurance Company's Varishtha plan, for people between ages 60 and 80 charges Rs 4,180 for premium on account of mediclaim, while it's general mediclaim policy charges Rs 2,322 only.

Besides, a co-sharing of expenses is insisted upon, with 10 per cent of medical bills thrust on consumer. Sub-limits for expenditure are also set out. For example, room rent during hospitalisation and surgeries is restricted.

Meenakshi   Subramaniam is a former IRS officer