Akbar has been working as an accountant for a few years and has a gross salary of Rs 8 lakh. He works for a local manufacturing company and is on the look-out for a better-paying job, preferably closer to where he stays. Bank interest and income from past investments fetch him Rs. 19,500 over the year. He is engaged and will marry Rubina next year. Born and brought up in Mumbai, his parents live with his elder brother overseas and visit him occasionally. His household expenses are not that high right now.
Akbar is yet to take a housing loan and is wondering whether to go in for a fixed-interest loan or a floating-interest loan. His friends have advised him to wait for the budget to get over. Perhaps there will be some better tax sops. So he is biding time in his well-furnished one bedroom rented apartment for which he pays a monthly rent of Rs 12,000.
Akbar has submitted documentary evidence and obtained a tax deduction/exemption in respect of HRA, LTA, employer's contribution to PF, transport allowance, reimbursement of telephone/internet and medical expenses.
He has been savvy with his investments and factored in his contribution to PF (of Rs 44,160) and invested additional sums in PF and infrastructure bonds adding up to Rs 64,861. In addition, he has contributed Rs 10, 979 towards LIC premium. This makes him entitled to the maximum tax benefit of Rs 1,20,000. Akbar pays a mediclaim premium of Rs. 1,497. That entitles him to a tax deduction. These tax exemptions/deductions, including those for investments, work out to Rs 3,19,457.
With a spending power of Rs 4,99,053, Akbar does splurge a bit on eating out, movies and has bought electrical appliances such as a washing machine for Rs 17,467. For good measure, he has also spent around Rs 19,000 on a digital camera and an iPod Nano. His fiancée is thrilled with these purchases. She wants him to stop smoking and the habit of frequenting pubs with friends, which have set him back by Rs 16,968 (with an indirect tax burden of 50 % at Rs 8,550).
If one were to take a quick look at his spending pattern, the maximum expenditure at Rs 1,79,659 is on rent, cooking gas and electricity (with an indirect tax burden of 2.36% at Rs 4,235). With Akbar prone to eating processed food, the next big spend is on food and beverages, where his spend is 16.60% of his total expenditure (with an indirect tax burden of 9.65% at Rs 7,498). Transport and communication expenses make a huge dent in his pocket. While he is fully reimbursed on the communication expenses, use of his motorbike, especially over weekends, leaves him poorer by Rs 8,983, with an indirect tax burden of more than 42% (Rs 3,814) included in this expense.
A tax sop is available under section 80E of the Income tax Act in respect of interest on student loans. But Akbar does not have any such liabilities. He has just incurred an expense of Rs 8,783 on improving his communication skills, something he hopes will help him get a better job. On this, indirect tax is just Rs 900, roughly around 10.24%.
Akbar now pays an income tax of Rs 34,767 and professional tax of Rs 2,500. He pays a little more than 10.5% of his total spend as indirect tax at Rs 53,470. This brings his total tax outgo to Rs 90,737 or 11.07% of his gross total income.
