Budget & You: Pay less on income, more on consumption

A service tax of 3% or 5% may not seem much, but it can add up to a significant amount if you consider the services you pay for as part of your overall consumption. There are need-based categories like food and groceries, housing, footwear and apparel, and aspiration-based ones, such as transport, health services, education, etc. It is the latter that has seen the maximum growth as a share of your wallet in the past few years.

Discretionary spending has increased from 35% of the average Indian household consumption in 1985, to 52% in 2005, and 58% in 2009. As incomes rise, we tend to spend proportionally less on basic necessities and more on discretionary items. Add to this the excise duty that we pay on most consumption products.

So before you celebrate the tax benefits from this budget, take a look at the indirect taxes that you will be burdened with.


Services on which tax is levied:

Air travel agents
Architects
ATM operations, management or maintenance
Auctioneers’ service
Authorised service stations
Auxiliary to general insurance / life insurance
Banking & other financial services
Beauty parlours
Broadcasting service
Business auxiliary service
Business support service
Cable operator
Cargo handling service
Practising chartered accountant, cost accountant& company secretary
Cleaning service
Clearing & forwarding agents
Clubs and associations
Commercial training or coaching centres
Commissioning and installation services
Residential complex construction
Consulting engineers
Convention services
Courier services
Credit card, debit card, charge card or other card
payment-related services
Credit rating agencies
Custom house agent
Dredging
Dry cleaning
Event management
Facsimile service

INVESTMENTS:

Insurance Premium

You will pay a tax of 15 paise per Rs 100 of your premium for endowment policies. This means you will receive lesser bonus and pay a higher premium on your life insurance policy. The industry expects the cost to go up by 50-75 basis points, or 0.5-0.75%.

Medical Insurance Premium

While the age of a senior citizen has been brought down to 60 years for calculating income, you will have to wait 5 more years to claim tax benefits on mediclaim premium up to Rs 20,000 paid for parents.

SPENDING:

Eating Out

You will shell out at least 3% more on the food bill if you dine in the comfort of an air-conditioned hotel that serves liquor. Even as excise duty on cakes, pastries and sugar confectionary is up, there’s no tax on takeaways and home deliveries. Also, goods sold strictly on MRP will be spared.