If you salary comes into the taxable category, your tax liability could be substantially

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lower during the next financial year. Finance minister Pranab Mukherjee has given relief to individual taxpayers by widening the personal income tax slab, hence leaving more disposable income in the hands of individuals.

The finance minister has raised the tax slab paying 10 per cent income tax to Rs 5 lakh in annual earnings from the earlier Rs 3 lakh. However, the exemption limit for tax-free income has remained unchanged at Rs 1.6 lakh for men and Rs 1.9 lakh for women.

In addition, an annual income between Rs 5 lakh and Rs 8 lakh will attract a tax rate of 20 per cent, while income higher than Rs 8 lakh per year will attract tax of 30 per cent.

“The further easing of income tax slabs will provide substantial relief to 60 per cent of taxpayers,” Mukherjee said in his budget speech.

According to back-of-the-envelope calculations by Financial Chronicle, a male taxpayer with a net taxable income of Rs 8 lakh can hope to save income tax to the extent of Rs 45,320 annually. An individual with annual taxable income of Rs 10 lakh and above would have savings of Rs 57,680.

“The savings will boost spending and ease pressure from a vast Indian middle class that is fighting double-digit food inflation. The government is more focused on consumption-led growth, putting surplus cash in the hands of investors,” said Ajay Kumar, executive director, PricewaterhouseCoopers.

In addition to the existing limit of Rs 1 lakh rebate under section 80C of the Income Tax Act, the budget also proposes to allow a deduction of up to Rs 20,000 for investments in long-term infrastructure bonds, in addition to the existing Rs 1 lakh.

“A taxpayer can channelise more funds towards their chosen financial goals despite earning the same income,” Ranjeet Mudholkar, principal adviser, Financial Planning Standards Board India, told FC.

The government is also expected to issue simpler tax return forms for salaried individuals called Saral II for the filing returns in financial year 2011. Tax expert Subhash Lakhotia said, “Only individuals with annual income of more than Rs 5 lakh will benefit from these direct tax changes,” he said.