As is human nature, we place high expectations on our governments. Especially those running on a massive mandate, have too many promises to keep.
Our government though has a lot going on. Given the connected world we live in, our economy is not immune to global challenges. There are a bunch of domestic challenges too. Businesses want GST to take shape, while the common man wants more money in their pockets. Keeping 1.2 billion people happy is not an easy job. What then is a reasonable expectation from the finance minister this budget, let’s find out.
About 14% of what our government earns comes from tax collections. The gap between our collections and expenses, is referred to as the deficit. Our government’s efforts are targeted at keeping this deficit in check. This helps keep our borrowings under manageable levels. Our tax collections have been under pressure lately. Also there is a large payout in this budget towards OROP. At the same time China looks threatening to global markets. All eyes are now set on the moves Modi government is planning, to reign in growth and reform.
It seems to be the perfect time for the government to take steps to simplify our tax laws. Tax payers will benefit from revision and simplification of numerous archaic exemptions and deductions in our tax laws. TDS or tax deducted at source has been the bane of deductees and deductors alike. Thresholds beyond which TDS must be deducted have not been revised since a long time. For example, TDS has to be deducted when payment exceeds Rs 30,000 for professional technical services. TDS on interest (other than securities) has to be deducted when it exceeds Rs 5,000. This increases compliance burden on deductors. Additionally, deductees whose total income is below taxable limit or is taxable at lower rates, have to either submit forms for no or lesser TDS deductions or claim refunds. Refund processing adds another layer to this issue. Therefore, it would be worthwhile to consider Eashwar committee’s recommendations of reducing TDS rate to 5%.
Some of the tax deductions, such as 80GG, which is allowed to those pay rent and do not receiveHRA has been set at Rs 2,000. This is the maximum amount that can be claimed. While HRA is directly linked to one’s salary, those who do not get HRA cannot claim deduction beyond Rs 2,000. Similarly, exemption on a children education allowance is fixed at Rs 100 per month for max 2 children. These deductions are lost in time. They should both be shelved and merged by increasing the exemption limit or should be enhanced to match with current times.
Section 80C limit is Rs 1,50,000 since financial year 2014-15. Also, this section is crowded with a host of deductions. Allowing a higher limit for investments would do the taxpayer good and this money may be used by the government to fuel growth. First time home owners have suffered at the hands of builders when projects are delayed. Innocent buyers have to forgo tax benefits as well as pay rent and EMIs. The government must consider relief for first time home owners, extending the period of construction, where the delay is from the builder’s end.
While GST may be on our finance minister’s mind, DTC (Direct Tax Code) must also be put up for discussion. Several valuable recommendations were put through in DTC and bringing it will put tax reforms in high gear.
A lot of progress has been made, returns can be verified online, refunds are processed much faster, the tax department is embracing technology like never before. There is still a long way to go to make our tax laws world class.
Here’s hoping our finance minister has good things lined up on 29th February this year. www.taxxcel.com