Prior to announcement of Union Budget many
individuals prepare a wish list of how income tax provisions should change in
their favour. Here is what EY expects on personal tax front
For most of us, February is a month of
expectations from the Union Budget for favourable tax rates, more reliefs,
deductions and most importantly less complex tax laws. The Indian Union Budget
2015-16 is just a few days away and every taxpayer has his/ her own wish list
on what can be expected from the current Budget.
In this article, we have listed down some
expectations from the upcoming Union Budget from a personal tax perspective.
As always, the foremost expectation of every
taxpayer is realignment or increase in the tax exemption limit. The basic
exemption limit could be increased from the current exemption limit of INR 2.5
lakhs keeping in mind the inflationary trends. This would place more disposable
income and spending power in the hands of a common man
The expected slabs could be as follows:
The expected slabs could be as follows:
Slabs (INR in lakhs)
Tax Rate
Upto threshold exemption limit NIL
Threshold exemption limit -10
10%
Above 10 - 20
20%
Above 20
30%
Also, the tax base of Net wealth can be
widened and tax rate can be reduced to improve the compliance. Currently,
Wealth Tax is applicable at 1% if the net wealth exceeds INR 30 lakhs. There
have been suggestions in the past to increase tax base of Net wealth.
Considering the inflation and increased costs,
FM could consider raising the exemption limits for various allowances ie,
Transportation Allowance (existing limit is INR 800 per month), Children
Education Allowance (currently, INR 100 per month) and leave encashment
exemption limit (currently, INR 3 lakhs) provided to salaried individuals as
these limits were fixed almost a decade ago.
The current exemption limit of INR 15,000 for
medical reimbursement made by the employer could be raised to INR 50,000 given
the ever rising medical costs and lack of adequate health coverage. Also,
deduction for mediclaim insurance premium could be increased from INR 35,000 (Self/
family - INR 15,000 and Parents - INR 20,000) to INR 50,000.
Standard deduction, which was meant to compensate the salaried class till the tax year 2004-05, should be reinstated, to a fixed amount or a fixed percentage of salary, to ease the tax burden and to improve disposable income. This would also reduce the disparity between salaried and business class with only the latter being eligible for deduction for expenses incurred by them for earning their income.
Standard deduction, which was meant to compensate the salaried class till the tax year 2004-05, should be reinstated, to a fixed amount or a fixed percentage of salary, to ease the tax burden and to improve disposable income. This would also reduce the disparity between salaried and business class with only the latter being eligible for deduction for expenses incurred by them for earning their income.
Further, considering the fact that the monthly
education expenses of children (allowed as deduction under blanket deduction of
INR 1.5 lakhs) form a major portion of any household budget, giving a separate
deduction for such expenses to the individual tax payers would be a big relief.
As there are too many investment/expenditures
clubbed under the existing overall limit of INR 1.5 lakhs (including
contribution to pension funds and scheme) under section 80C, the Government may
look at increasing the overall deduction limit to at least INR 2 lakhs to boost
further investment and to increase tax savings for individuals.
In case of individuals who are not in receipt of House Rent Allowance, the maximum deduction in respect of rent paid is INR 2,000 pm (last revised in 1998) and is very low in light of the huge rental costs, especially in metro cities. This exemption needs to be revised in line of current rental costs.
As part of bringing in more credibility among
tax payers and to streamline income tax procedures, the government has set up a
Tax Administration Reform Commission (TARC). It would be good if suggestions
given by TARC are considered in the budget like further empowering Ombudsman,
educating tax officers on complex tax matters etc.
The Central Board of Direct Taxes (CBDT)
had recently issued Standard Operating Procedures (SOPs) which would guide the
tax authorities in better handling of TDS related issues and to address various
features in the re-engineered processes in TDS administration.
As this Budget would be the first
full-fledged budget by the Finance Minister, expectations of common man as well
as the industry are quite high. One could expect that the long term savings
would be given a boost to encourage investments and the deduction limits fixed
over a decade back would be raised to increase disposable income and spending
power. While there are lot of speculations on the expectations, one needs to
wait for the final outcome.
