Income Tax 23 Jan,2020
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More relief to individual salaried taxpayers
Sahil BhasinManager with Deloitte Haskins & Sells LLP.
Nitin BaijalDirector, Deloitte India

Union Budget 2020 is just round the corner and the question on every person's mind is whether the Finance Minister will provide relief to the individual salaried taxpayer? Given that the FM has already provided relief to corporate taxpayers, expectations from individual taxpayers is bound to be high.

If we step back a few years, there has not been any notable reduction in tax rates or any change in slabs. The lowest slab rate was last amended in Budget 2017 from 10 percent to 5 percent. On the contrary, for financial year (FY) 2019-20, authorities have increased the surcharge from 15 percent to 37 percent for individuals with income above INR 2 crore. This effectively means that individuals in the highest income slab are being taxed at 42.744 percent when compared to just 25.17 percent for corporates.

Hence, rationalisation of slab rates is long due and the need of the hour. The authorities may accordingly consider exempting the initial INR 5 lakh (currently INR 2.5 lakh) of income for anyone and everyone. In other words, the first slab should ideally start from INR 5 lakh and go up to INR 20 lakh which may be taxed at 10 percent (currently 20 percent). Similarly, income above INR 20 lakh (currently INR 10 lakh) may be taxed at 25 percent (currently 30 percent). Surcharge (ranging from 10 to 37 percent based on the income) may however, continue to be levied on the super-rich.

Another, long due demand of the salaried tax payer is increasing the exemption limit under section 80C. This section of the Act has technically not been touched in the past 5-6 years and therefore needs a re-look. Popular investments/expenditures eligible for deduction include life insurance premiums, contributions to provident fund, payment of tuition fees, repayment of principal amount of housing loans, public provident fund etc. Given the inflationary increase in the economy the limit of INR 150,000 looks miniscule. The limit was last increased from INR 100,000 to INR 150,000, way back in 2014. In view of the same, the limit of deduction should be enhanced to a minimum of INR 300,000.

Increasing pollution in metro cities where a majority of employees work, is likely to lead to an increase in the number and severity of diseases in the coming years. Also given the substantial increase in the cost of medical treatment every family should have an appropriate medical cover to counter any unforeseen medical expense. It is common knowledge that, with increase in age and amount of cover, the premiums increase. Therefore, the limit of deduction towards premium paid for medical insurance under section 80D of the Act should be done away with and deduction should be allowed on the actual amount of premium paid.

Another area authorities may consider revamping, although specific to salaried tax payers, are the list of allowances exempt from tax. While there is a vast list of allowances which need to be re-considered by the policy makers, there some which are critical and either need simplification or rationalisation. Leave travel allowance is one where the focus should be. With stress and anxiety being common these days, majority of the salaried tax payers plan holidays a few times during the year to unwind and relax. Hence, restriction of exemption of leave travel allowance being limited to two times in a block of four years should be done away with. Further, the authorities may consider extending LTA to overseas travel as well, if not entirely then at least with some reasonable limits.

Just like medical expenditure, in the past decade the cost of education has increased substantially. With parents wanting to impart the best of education to their children the government may consider providing some relief in terms of increasing the education allowance and hostel allowance that stands at a paltry INR 100 and INR 300 per child per month respectively.

Moving on from allowances, the authorities may provide further relief to the common man, by rolling back the limit of INR 100,000 on exemption on long term capital gains from sale of equity and equity-oriented mutual funds. If not completely rolled back, the expectation is to increase the limit to INR 200,000.

On similar lines, the expectation is that the cap of INR 200,000 on set-off of losses under the head house property against other heads, be rolled back. Before Budget 2017, there was no cap on setting off loss from the house property against other heads of income such as salary. However, from FY 2017-18, the loss that can be allowed to be set-off against other heads has been restricted to INR 2 lakhs. This severely curbed the tax benefit on the interest paid on housing loans in case of properties that are rented out.

Last but not the least, authorities may re-look at reintroducing the deduction for investment in infrastructure bonds. Infrastructure being the backbone of the economy the limit of deduction should be enhanced to at least INR 150,000. This will not only provide more avenues to salaried taxpayers for investment, but will also boost the infrastructure sector.

Although, the list of expectations is vast, any major relief in terms of what was discussed above, would go a long way in unburdening salaried taxpayers from the heavy weight of taxes eating into their future savings.