Published Editorial

Budget 2017 - Hopes of some sops post-demonetization

January 2017

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Shuddhasattwa Ghosh
Tax Partner, People Advisory Services, EY India

After demonetisation, expectation from the government is to bring down the existing tax rates to ease the pain of demonetisation as well as give an overall view that the step was in the right direction and the benefits are being passed on to the common man. Though the tax rates may not be tinkered with, some realignment of slab rates is expected. Also, a few of deductions and exemptions which have become farcical over the passage of time may be relooked.

The threshold limit may be raised to Rs 5 lakh with changes in the tax slabs:

With the housing loan rate going down, to further induce the middle income and low income group to own house, the deduction for interest payment on housing loan can be enhanced to Rs 5 lakh or actual, whichever is lower. This would in turn give the required impetus to the housing sector too.

In the Finance Act, 1992, exemption of Rs 1,500 was introduced where the income of minor child is included in the hands of the parents. The exemption limit has remain unchanged for a long 25 years. The exemption limit requires to be increased to at least Rs 10,000 per annum per child.

In the financial years 2010-11 and 2011-12, deduction was available for investments in long-term infrastructure bonds up to Rs 20,000. Reintroduction of this Section would give a boost to investment in infrastructure by individuals and HUFs (Hindu undivided families). The investment limit for such infrastructure bonds eligible for deduction could be Rs 50,000.

In today's world, providing a car by the employer to the employee for personal and official use, or reimbursing for the running and maintenance expenses (where the car is owned by the employee), as a part of the cost to company is common. However, the taxation rules for the above mentioned scenarios differ. The perquisite valuation is higher in the latter compared to the former and the same needs to be realigned.

Conveyance/transport allowance is a very common allowance offered to employees to commute between the workplace and residence. Currently, the exemption is capped at Rs 19,200 per annum (Rs 1,600 per month). However, given that employees may be required to travel from a far distance to their workplace, the exemption limit should be enhanced to Rs 36,000 per annum.

Child education and hostel allowance received from an employer is exempt to the extent of Rs 100 and Rs 300 respectively for maximum of two children. The exemption limit was revisited in the year 1997 and has remain unchanged since then. The exemption limit, given the education cost incurred in today's world, should be enhanced to Rs 1,000 per month per child.

Currently, reimbursement for medical expenses up to Rs 15,000 per annum is not taxable. The limit was set in 1997 and has not been revisited whereas the healthcare cost has gone up significantly in the recent past. The exemption limit needs to be increased to at least Rs 50,000 to be in sync with the increasing healthcare costs.

Section 80C of the Income Tax Act, 1961 provides provisions for tax deductions for a certain specified expenses and investments. Currently, the maximum amount eligible for the deduction is Rs 1,50,000. For salaried employees, a major portion of the said limit is exhausted by their contribution to Provident Fund. The government may either look to exclude the PF contribution out of the purview of Section 80C limit and provide a separate deduction on actual basis. Alternatively, the government can increase the deduction limit to Rs 300,000.

Leave Travel Allowance or LTA is provided to employees for travelling when on leave. Today, with the advent of numerous airlines, the cost of travel outside India to nearby countries is similar to cost of travelling within India. Further, while on travel, ancillary expenses like accommodation, food, taxi is unavoidable. Therefore, permissible leave travel allowance should be provided for the expenses incurred for travel outside India and should be extended to the ancillary expenses as well. The leave travel concession is currently allowed following a calendar year concept. Realigning the same with fiscal year would help.

Higher deduction and exemption limits lowers the tax burden on the lower and middle class taxpayers which in turn boosts their savings/investments. Middle class constituting the majority of the population in India, we expect that the Hon'ble Finance Minister would revisit the long decayed exemption limits.