Jaane kahan gaye woh din — the first line of a popular song — seems to be the common refrain on everyone's lips these days.
The Government has just revised the FY-12 GDP growth estimate downward to 6.9 per cent; inflation remains elevated; the rupee has depreciated by 11 per cent against the US dollar and there is an overall air of uncertainty in the economy. This is in sharp contrast to the rosy picture we saw a year ago.
The Government is also grappling with a ballooning fiscal deficit (last estimate: 5.7 per cent) which makes fiscal giveaways in the upcoming budget an unlikely prospect.
The Finance Minister has proposed to make structural changes to the tax regime by introducing the draft Direct Taxes Code (DTC) to be effective from April 1, 2012 but the same is not likely to be introduced by then. However, we can expect that the Budget is likely to introduce some changes proposed in the DTC.
What can the aam aadmi really look forward to in the upcoming:
Raise the exemption limit : The slab of tax free income has not moved up in line with real inflation. The current basic exemption limit of Rs 1,80,000 should be increased to Rs 3,00,000. This will increase the purchasing power of individuals and stimulate demand.
Reduce the maximum marginal tax rate : In India, the maximum marginal income tax rate for individuals is 30 per cent, which is on the higher side compared with other countries.
To elaborate: Peak rate in Singapore is 20 per cent; 17 per cent in Hong Kong; 26 per cent in Malaysia and 24 per cent in Sri Lanka.
Further, the peak rate in other countries is attracted at significantly higher income slabs. The Government could consider a reduction in peak rate from the current 30 per cent to 25 per cent. Further, the peak rate should be attracted at a higher income slab of Rs 10,00,000 (as compared to the current limit of Rs 8,00,000).
Revival of standard deduction : The standard deduction for salaried employees should be revived. Standard deduction is not a personal allowance but was earlier given as a lumpsum for meeting employment-related expenses such as on conveyance, books, and so on. Salaried employees should not be deprived of standard deduction from their salaries when professionals/ businessmen are eligible for deduction of expenses incurred for earning their income.
Medical reimbursements : Medical expenses of up to Rs 15,000 reimbursed by the employer to the employees for medical treatment of employee or his family member is tax-free.
With increasing healthcare costs, the existing tax free limit of Rs 15,000 should be increased to Rs 50,000. Though this aspect has been recognised in the proposed DTC, the same also needs to be considered in the Budget.
Transportation expenses : The transportation allowance granted by the employer to his employee for commuting between the place of work and residence is tax-free to the extent of Rs 800 per month.
This limit was fixed more than a decade ago, and definitely needs to be revised upwards to at least Rs 3,000 per month, given the rising commuting costs across the country.
Additional benefits related to housing : Housing is a basic necessity for the common man. An individual is permitted deduction for interest on loan for a self-occupied property only up to Rs 1,50,000.
This limit has not been revised for a long time while property prices have increased manifold.
The Government should consider increasing this limit to Rs 3,00,000. This would have a two-fold impact of not only reducing the taxable income of an individual but also boosting demand for the housing sector.
Investment limit under Section 80C : Though the avenues for investment under Section 80C have been increased with the years but the limit of Rs 100,000 has remained the same.
The Government should increase the aggregate deductible limit under section 80C from Rs 1,00,000 to Rs 3,00,000. This will encourage long-term savings by tax payers and enhance availability of low-cost funds for the government to meet its long-term development needs.
Investment limit under Section 80CCF : Investment in infrastructure bonds are currently allowed as a deduction up to Rs 20,000.
These bonds have proved to be quite popular and the limit should be increased to Rs 50,000, considering that the Government needs massive funds for the development of the infrastructure sector and also the lock period be reduced to three years.
Hope springs eternal in the human heart — with all the turmoil in the world around him, the aam aadmi can only hope that the Finance Minister keeps the expectations in mind while balancing the books for what is expected to be a very tough year.
(Homi Mistry is Partner and Deepika Mathur is Senior Manager, Deloitte Haskins & Sells.)