The cut in personal income tax is quite likely as the government may want to increase the purchasing power of and consumption by individuals, to boost demand in the economy.
Rejig of tax slabs and tax rates
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With high of cost living and rising prices, there is high expectation by individuals that the government would take adequate measures to increase their disposable incomes, so as to meet their consumption requirements and plan for future savings.
Restructure of 80C
It is recommended that the benefit under section 80CCF be reintroduced to promote raising of funds for infrastructure development with a maximum deduction up to Rs 1 lakh.
However, over the years, the scope of this deduction has become too wide as compared to its very modest limit such as – life insurance premium, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, tuition fees, principal repayment of housing loan, etc.
It is expected that there will be an increase in these limits in line with the increased cost of living. Currently, Section 80C allows a maximum deduction of Rs 1.5 lakh from the gross total, which generally gets exhausted through Provident Fund (PF) contributions, tuition fee expenses, payment of housing loan principal and life insurance premium.
As such, the exemption limit under Section 80C can be enhanced from Rs 1,50,000 to Rs 2,50,000 which would provide tax savings in the range of Rs 20,000 to Rs 30,000 depending upon the level of income.
Alternatively, it should carve out a separate deduction for expenses such as children’s tuition fees, life insurance premium and housing loan principal payments as compared to the investment-oriented items in that scope.
As per an important data point that was shared in the 2018 Budget speech which reflects Indian situation, individual business taxpayers (including professionals) paid an average tax of only Rs 25,753 each as compared to Rs 76,306 from the salaried taxpayer.
Hence, there is a need to increase the standard deduction of Rs 50,000 to at least Rs 1 lakh to take care of the salaried employees increasing expenses like increase in cost of the petrol/diesel, cost of food, medical expenditure, etc.
Boost to realty sector:
a. Affordable housing benefit
Interest deduction for let-out property
Additional investment in the real estate sector: Government’s motto is to provide housing for all. To boost the real estate sector, the government should consider enhancing the limit for deduction of interest paid on housing loan to Rs 3 lakh in case of a self-occupied property which would not only provide tax savings but also promote the housing sector.
Budget 2017 had limited the amount of housing loss that could be claimed in the same year to Rs 2 lakh, and provided for carry forward of the remaining loss for eight years for set-off against the house property income. The Government should consider either increasing the limit to Rs 4 lakh that could be claimed in the same year against any head of income or reinstate the provision which existed prior to Budget 2017 (i.e. allow full deduction in case of let out property)
The rationale is that if the taxpayer does have not positive house property income during the following eight years for set-off, the loss brought forward would lapse and the taxpayer would lose the tax benefit in total.
This has restricted Investment in real estate as the amount of interest paid is always higher than the rental income.
As such, the ceiling on the cost of the house needs to be significantly enhanced to derive the full potential of the benefit i.e. raise the limit of the value of the house and also the period for taking a loan should be extended up to March 31, 2021.
With growing internationally mobile population, the growing need to look at issues faced by such class of employees e.g. – FTC at withholding stage, ESOP taxability for multi country services
When an employee takes up assignments outside India, the benefit from stock options has to be prorated based on the assignment tenure in each country during the vesting period. In case of mobile employees who qualify as Non resident or Resident but not ordinarily resident who exercise stock options, only pro-rata value in respect of days spent in India during the period grant to vest should be subject to tax in India based on OECD commentary and various judicial precedents.
This principle is not expressly stated in the income tax laws. Hence, some companies reduce taxes on the entire income instead of income only attributable to the India service period. This increases the tax outflow for the employee. Explicit provisions in income tax laws can remove such ambiguity. It is recommended that the Act should specifically provide for prorate taxation in respect of mobile employees who qualify as NR or NOR.
The individuals being sent from India to overseas is significant and needs focussed attention in terms of tax relief, avoidance of double taxation and procedural relaxation. Over the past few years, there have been additional compliances, especially with respect to reporting of overseas assets, and claims of treaty relief.
Official foreign travel typically results in compliance in more than one country. Taxation is triggered based on the country of residence and/or source.
Employers should be able to claim credits for taxes paid in the overseas location as part of the payroll process and the tax laws and rules should provide a framework to do the same to avoid disputes. Under current laws, these are not expressly provided.
The law should specifically provide for claiming FTC at withholding stage for individuals who qualify residents and ordinarily resident of India. Such a process would avoid claiming of refund at the tax return stage and avoid cash flow issues to the individual
Enhance the LTCG exemption for equity investments
Current LTCG exemption for equity investments of Rs 1 lakh is too low as many individuals are holding MF investments for many years. To incentivise retail investments into equity MFs, the government could consider increasing the limit of Rs 1 lakh to Rs 2 lakh to encourage tax payers to make investment in capital market for holding beyond say 2 years (other situations exceeding such limits can continue to be taxed at 10 percent)
Deduction on contribution to National Pension Scheme (NPS) –
Increase deduction limit for health insurance
Healthcare costs continue to rise and hence people need a higher health insurance cover.
The government may consider increasing the investment limit in respect of payment towards health insurance premium under section 80D from Rs 25,000 to at least Rs 50,000 for self and family, and for senior citizens dependent parents from Rs 50,000 to at least Rs 75,000.
-by Divya Baweja