The common man has widespread expectations on personal income taxes from the Budget, after witnessing slow economic growth over the past 12 months in the backdrop of post-demonetisation effects and the impact of GST. Here’s a look at what the finance minister can do in Budget 2018.

Increase basic income exemption limit: Currently, income up to ₹2, 50,000 per annum (pa) is tax-free. The limit set is relatively low compared to other countries and has remained constant since FY2013-14. With the objective of enhancing the net disposable income, this limit may be revised to at least ₹3, 00,000 pa. Further, the existing income tax exemption limit of ₹3,00,000 p.a. for senior citizens (60-80 years) and ₹5,00,000 pa for very senior citizens (80-plus years) may correspondingly be enhanced to ₹3,50,000 and ₹5,50,000 respectively. Alternatively, in order to bring parity with the (rising) inflation, the minimum exemption limit may be linked to the cost inflation index and adjusted every year.

Increase income threshold for peak tax rate : Currently, the maximum tax rate of 30 per cent is for income exceeding ₹10 lakh pa which may reasonably be enhanced to ₹20 lakh pa. Subsequently, the other slab rates should be adjusted on the basis of the revised limits. This will enhance the consumption capacity of individuals or increase household savings for making investments in house property, capital markets, mutual funds, etc..

Increase deduction for housing loan interest: Budget 2016-17 provided the desired push to incentivise the housing sector, with steps to promote affordable housing. It also aimed to kick start the investment cycle especially in the real estate sector, which had dried up significantly post demonetisation. Also, last couple of years have evidenced a lot of upcoming housing projects at affordable rates under the Pradhan Mantri Awas Yojana scheme. However, the limit of income-tax deduction for interest paid on housing loan on self-occupied properties is quite low at ₹200,000 pa. Such limit may be considered to be doubled to ₹400,000 pa to provide a much-needed helping hand to both, industry and individuals.

Increase Section 80C deduction limit: An individual is allowed an annual tax deduction u/s 80C of the Income-tax Act, 1961 up to ₹1,50,000 for various tax savings investments/expenses such as life insurance premium, Public Provident Fund, children tuition fee, specified fixed deposits, principal repayment of housing loan, etc. The ₹1,50,000-limit has been kept constant since FY 2014-15 and has not kept pace with the rising inflation rate. Hence, there is merit in enhancing this limit to at least ₹3,00,000 pa to provide an impetus to consumer spending to spur demand and encourage individuals to meet their saving goals which also allows the government to meet larger socio-economic objectives of the country in the long run.

Reconsider various exemptions: The various exemptions currently provided to individuals especially salaried class need reconsideration. The popular ones are medical reimbursement by the employer up to ₹15,000 per year, children education allowance up to ₹100 per month per child, children hostel allowance up to ₹300 per month per child and lunch/ refreshment perks up to ₹50 per meal. These limits have outlived their utility and could be enhanced substantially, say medical reimbursement to ₹50,000 per year to keep pace with ever raising medical costs, children education allowance limit to ₹500 per month per child, children hostel allowance limit to ₹1,500 per month per child and meal vouchers upto ₹100 per meal.

Relax taxability of NPS: Currently, the National Pension Scheme works on an Exempt, Exempt, Tax (EET) regime wherein the terminal benefits on exit or superannuation in the form of lumpsum withdrawals are partially taxable in the hands of the taxpayer in the year of receipt of such amount. Partial relief was provided by the Finance Act 2016, wherein 40 per cent of the accumulated corpus upon withdrawal/superannuation was made tax-free. To encourage individuals to plan for their retirement needs, it should be made more tax-friendly as the objective of this scheme is to create a pensionable society. Accordingly, the tax regime of NPS may be considered to be made Exempt, Exempt, Exempt (EEE) on the lines of schemes such as Employee Provident Fund and Public Provident Fund.

The writer is Partner and Head, Global Mobility Services-Tax, KPMG India

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