It is that time of the year when employees and individuals start contemplating whether taxes will have a positive or negative impact on their income, based on the Union budget presented by the Finance Minister on the last day of February.
In his last budget speech, Finance Minister Arun Jaitley had stated: “As and when my fiscal capacity improves, individual taxpayers will have a lot to look forward to.” This would generally tempt to build high expectations among individual taxpayers. However, this is going to be a difficult year considering the optimistic fiscal deficit targets.www.taxxcel.com
Considering the pressure that the Seventh Pay Commission has put on government coffers, it is possible that the budget focuses on increasing the revenue than granting tax cuts. Having said that, individual taxpayers, specifically the salaried employees, should not be on the government’s radar for increasing tax revenue.
Discussed below are few pointers that may have an impact from an individual’s perspective:
Basic exemption: Considering there is a shortfall in direct tax revenue target and the government has a vision to increase the taxpayer base, it seems likely that the basic exemption will remain at Rs. 2.5 lakh. However, the Finance Minister may consider providing relief by increasing the tax bracket of 10 per cent or 20 per cent.
Deductions: If the investment limit for individuals is enhanced from Rs. 1.5 lakh to Rs. 2.5 lakh, it will be a welcome change as there is a need to encourage savings and investment to boost economy.
With a boost required to the infrastructure sector and demand of higher tax deduction, it would be effective to reintroduce the deduction on investment in infrastructure bonds.
Self-employed individuals enjoy deductions of expenses incurred by them in connection with their income whereas salaried employees do not have an option to claim any such deductions. However, until 2004-05, standard deduction was allowed from the total income of salaried employees. One of the expectations of salaried employees would be reintroduction of the standard deduction with new limits.
The previous budget saw an additional deduction of Rs.50,000 being made available to individual taxpayers upon investment in the New Pension Scheme. However, due to the condition of taxability at withdrawal, this scheme did not receive expected response. This year, people may expect some relief at the withdrawal stage to further attract investment in the scheme.
Exemptions: Medical expenses have substantially gone up over the years since 1998, when the exemption of Rs. 15,000 was last set. The expectation would be to increase this limit in order to match the increasing medical expense.
There has been a substantial increase in the cost of education over past years. However, the limits set on the exemption for children education allowance and hostel expenditure allowance have remained unchanged since 2000. The current limit of Rs. 100 per month and Rs. 300 per month for children education allowance and hostel expenditure allowance, respectively, is insignificant. Thus, the expectation is that these limits be increased to meet the current education expense.
Limit of interest on housing loan: The deduction for interest on housing loan is currently limited to a maximum of Rs. 2 lakh for one self-occupied house property. This could be increased to Rs. 3 lakh to give a boost to the real estate sector, especially considering the recent slump.
Whilst the above amendments would be what most individual taxpayers may desire, one needs to wait and watch if these are also on the Finance Minister’s list.
Additionally, one may see following changes, considering the government’s relentless focus on curbing black money and use of technology for easing the tax processes:
Black Money Act: Given the fact that the voluntary disclosure scheme under BMA has not generated expected revenue, we may see additional vigilance and strict compliance covering black money. Further, with growing information sharing between governments, this could gain more traction in the coming times.
Technology: With the CPC already being a success story in processing of returns and related proceedings, the Revenue Department has proposed e-hearing for scrutiny proceeding replacing the need of physical presence. Thus, the government’s intent of using technology to ease various processes for taxpayers is clear. We may see further simplification of tax return filing processes and reduced manual filings.
Based on the above, it would be an interesting budget to look out for as the Finance Minister will have a dual challenge to bridge the fiscal deficit and, at the same time, to meet expectations of the common man. All these speculations would be laid to rest on February 29 when Mr Jaitley unveils the Union budget for 2016-17.