Published Editorial

Budget 2014: Expectations Of Acche Din On Personal Tax

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CNBC - The Firm website

By

Pramod Achuthan

Tax Partner, EY

Contributed by:

Jagdeep Sadhale

Senior Tax Professional, EY

It is budget time yet again and the Finance Ministry is under pressure to come out with a host of tax and non-tax measures to promote growth and to get the Indian economy on track.

On the personal tax front, can the common man who has been reeling under increase in prices obtain some relief in income-tax which will increase spendable income and boost savings? 

As always, the foremost expectation of every taxpayer is realignment/increase in the tax exemption limit. Currently, the exemption limit stands at Rs 2,00,000 for both men and women who are less than 60 years of age. The exemption limit should be enhanced to Rs 5,00,000 which will especially benefit the middle class with more cash and spending power.

Currently, an individual gets a deduction of Rs 100,000 for expenditure on specified purposes / investments under section 80C.  With the need to channelize investments and encourage savings, there is an expectation to increase this deduction to Rs 300,000, since this limit was not increased from its insertion in April 2006. Also, there is a tax break of Rs 10,000 on savings bank interest which should be raised to at least Rs 20,000 and should also include interest on fixed deposits.

With ulfilsng costs, the current tax breaks set ages ago for transport allowance of Rs 800 per month should be raised to Rs 5,000 per month and for medical expenditure reimbursement from Rs 15,000 per year to say Rs 30,000 per year. Similarly, children education allowance of Rs 100 per month per child (for a maximum of 2 children) and hostel allowance of Rs 300 per month per child (for a maximum of 2 children) needs drastic revision to say Rs 5,000 per child per month separately for education and hostel expenditure. Also, the LTA exemption could be made applicable every year and should include hotel costs as in addition to the tax break, it will also provide a boost to the Indian tourism industry.

The salaried employee is currently taxed on his gross salary. An employee incurs costs to keep himself in an employable condition including costs for acquisition of new skills / upgradation of existing skills. Thus, the standard deduction from gross salary that was available till 2006 should be re-introduced.

Currently, a tax break for interest up to Rs 150,000 is available on loan taken for acquisition of house property. With multi fold appreciation in property prices and rise in housing loan interest rates resulting into higher EMI, the tax break on interest could be based on actual interest expenditure or raised to at least Rs 300,000 along with a separate tax break for principal repayment of home loans rather than inclusion in section 80C.

With globalization, concepts like joint filings, higher deductions in case of dependents, treaty benefit at withholding stage and pre-filled tax returns should be considered.

On the tax administration front, there is a crying need to introduce accountability measures with respect to tax assessments and to ensure that tax refunds are granted without any hassles and that too on a stringent time-line driven basis.  Also, the recent trend of issue of tax demands on honest tax payers due to non-grant of TDS credit due to mismatches in the tax authorities’ computerized system or due to errors in the e-TDS returns filed by the tax deductors has to stop immediately.

On the positive side, there is a strong thought within government circles that the disposable income of the middle class has eroded due to persistent inflation. The Finance Minister too in recent times has openly advocated an increase in the income-tax basic exemption limit. This certainly leads one to be optimistic that the government may introduce some if not all of the above tax rationalization measures.

On the other hand, there is inflation, significant slowdown in growth likely to be further accentuated by the El Nino-led deficient monsoon, rising fiscal deficit as well as lower than targeted tax revenues to name a few challenges faced by India.  So don’t be surprised if there is a sting in the tail in the form of a higher tax of say 35% on the ‘super-rich’ for those earning Rs 10 crore or more or perhaps a widening of the asset base from a Wealth tax perspective.

To conclude, one certainly hopes that the new government armed with an absolute majority in Parliament gives the common man something to cheer about and ulfils its promise of ‘Acche Din Aane Wale Hain’!!!