Individual taxpayers have high expectations from the Finance Minister, when he presents Budget 2018 next Thursday. There is much pent-up demand, similar to a year back. But in Budget 2017, the FM gave just one concession for the aam aadmi — reduction in tax rate in the ₹ 2.5 lakh to ₹ 5 lakh income slab from 10 per cent to 5 per cent.
This benefit, too, was dulled by cut in the rebate to ₹2,500 for those with incomes up to ₹3.5 lakh, from ₹5,000 on those with incomes up to ₹5 lakh. Thus, the tax outgo halved for those with taxable income up to ₹5 lakh, while for those with higher income, the benefit was ₹12,875.
Other than this minor tweak, the FM did not oblige on the widely anticipated increase of the investment limit under Section 80C or the health insurance deduction under Section 80D. He kept the tax-break on interest on loans for self-occupied property at ₹2 lakh a year. On the contrary, the set-off of loss from let-out property (arising due to interest on loans) was capped at ₹2 lakh a year.
From 2006-07, when Section 80C was introduced until 2013-14, the limit stayed put at ₹1 lakh. Only in the 2014-15 Budget was the limit raised to ₹1.5 lakh. But over the past decade, a steady rise in inflation has eroded the real tax benefit. So, there is room to hike the limit several notches. Ditto for the tax exemption slabs, which have been raised in minor instalments over the years.
By how much should the tax breaks be hiked? Demands vary. Rakesh Nangia, Managing Partner, Nangia & Co LLP, says that the basic exemption limit that has remained ₹2.5 lakh for the last three years and should be linked to the rate of inflation and raised every year automatically.
Kuldip Kumar, Partner & Leader, Personal Tax, PwC, says, “The basic exemption limit may be raised from ₹ 2.5 lakh to 3 lakh (and from ₹3 lakh to 3.5 lakh for senior citizens).” Amarpal Chadha, Tax Partner, EY, expects relaxation in the limit from ₹ 2.5 lakh to ₹3.5 lakh.
Tax bracket rejig
Some experts are calling for a rejig of tax brackets. Arun Thukral, MD and CEO of Axis Securities, says: “Currently, the income in the ₹5-10 lakh bracket attracts 20 per cent tax rate. Salaried employees expect a reorganisation with a change in the tax bracket of ₹2.5-5 lakh to ₹3-7 lakh, or the introduction of a new slab with lower tax rate of say 10 per cent for the ₹5-8 lakh income slab, and 20 per cent tax for incomes between ₹8 lakh and ₹12 lakh or so.”
Agreeing with the need for a rejig in slabs, Rakesh Nangia says, “The threshold at which the highest tax rate of 30 per cent kicks in should be increased, since low tax rate encourages higher compliance.”
On Section 80C tax-saving investments, there is expectation that the limit will be hiked by ₹50,000 or ₹1 lakh. Lalit Keshre, Co-founder & CEO, Groww, an online investment platform says, “Saving tax is one of the biggest reasons for youngsters to start investing. Increase in the tax deduction limit under Section 80C will help millennials save more. The current cap is ₹1.5 lakh. We expect it to be raised to ₹2 lakh.”
Arun Thukral of Axis Securities calls for an increase in the Section 80C deduction limit to anywhere between ₹2 lakh and ₹ 3 lakh.
Also being asked for are much higher tax breaks on health insurance under Section 80D, from the current ₹25,000 for those below 60 years and ₹30,000 for senior citizens. Amarpal Chadha of EY says, “Section 80D deduction for medical insurance may be enhanced in the range of ₹80,000 to ₹1 lakh.”
Also, many other exemptions such as medical expense reimbursement (₹15,000 a year) and children’s education allowance (₹100 per month per child) have been at the same level for almost two decades. There are expectations that such exemptions will be hiked.
Kuldip Kumar of PwC says, “Tax-free medical reimbursement by employers may be enhanced from ₹15,000 to ₹50,000 as no raise has taken place since 1998-99.”
For senior citizens
A special dispensation for senior citizens is also sought. Kuldip Kumar says, “Senior citizens, particularly those earning up to ₹10 lakh per annum, may be given a deduction of ₹75,000 towards interest on fixed deposits or other fixed income saving instruments. They may also be allowed a deduction of ₹50,000 for routine medical expenses.”
Other suggestions include re-introducing the standard deduction on salary income. This was removed in 2006. Rakesh Nangia says, “To bring in parity among salaried and non-salaried tax payers, standard deduction should be reinstated.”
On real estate, there are demands for removal of taxability of notional rent on house property, extension of additional deduction of ₹ 50,000 for first-time home buyers, and increase in the set-off limit of ₹ 2 lakh on loss from house property.
Also, there are calls to make the National Pension System more attractive by increasing tax exemption on lumpsum withdrawal to 60 per cent from 40 per cent, and increase in additional tax deduction under Section CCD(2) from ₹50,000 to ₹75,000 or ₹1 lakh.
The list is long. Will the FM oblige?