Budget 2016: Expectations on the Personal Taxation front…

One of the key themes of this budget will be putting more money into the hands of the people. Obviously, that will have to be undertaken at the level of personal taxation. Either this could come in the form of exemptions or could come in the form of additional rebates. In many cases, the limits have been defined many years ago and may not actually be relevant any longer. Such limits surely need a re-look. Let us look at a few such expectations from this budget on the personal taxation front.

Existing taxation structure…

There are two basic expectations here. Currently the peak taxation rate starts at a fairly low level of income, especially when compared to global benchmarks. What people do expect from this budget is to make income up to Rs.3 lakhs fully exempt and charge only 10% tax till the income level of Rs.10 lakhs. The peak rate of tax of 30% should be only applied beyond the annual income limit of Rs.20 lakhs. This will give a huge relief for the lower and middle income groups and will also in-turn contribute towards greater purchasing power for the retail masses.

The standard deduction was withdrawn in the financial year 2004-05. For the lower and middle income groups, this is an important avenue of getting a basic tax relief. This also puts individuals at par with the businesses which get the relief for expenses. The standard deduction was actually meant to compensate for this difference and could be re-introduced in this budget.

Expect some more realistic exemptions…

The benefits of Section 80C have been constant at Rs.150,000/- annum for a very long time. Last year an additional limit of Rs.50,000 was provided for the NPS (National Pension Scheme) contributions. However, the base exemption of Section 80C has still been maintained at Rs.150,000. With rising incomes, people are contributing more to their provident funds and insurance premiums are already crossing the limits for most individuals. The bare minimum that can be done in this budget is to enhance this limit from Rs.150,000 to Rs.300,000 so that it becomes more realistic in tune with the changing times.

In addition, some of the other exemptions do not reflect the reality of costs that people are required to incur. Take the case of Section 24 for interest on home loan repayment. An interest limit of Rs.200,000/- per annum can at best cover a housing loan of Rs.25 lakhs per annum. In most of the larger cities in India, this is hardly sufficient to either purchase or construct a house. This limit also calls for an enhancement to Rs.400,000/- in two tranches. In addition, the existing limit of Rs.10,000 on interest income per annum for exemption can be increased to Rs.20,000/- and this benefit can be extended to all kinds of interest receipts, rather than just savings accounts. 

Some additional expectations… 

In addition to the above, there are some additional benefits that individuals are expecting from this budget. Some of the key demands are highlighted here in:

  • A separate category can be created to give a dedicated deduction of Rs.20,000 per annum on ELSS. This will help in two ways. Apart from saving tax, it will also inculcate an equity cult and also impress upon them the need to invest in equities for the long term.
  • Medical insurance premium are currently deductible under Section 80D. There are separate limits available for family and for parents who are senior citizens. The government can offer an overall fungible limit of Rs.100,000 for medical insurance premium payment, without specifying any breakup.
  • The leave travel allowance (LTA) has remained static at Rs.300,000 for a very long time. There are two things this budget can address. Firstly, the limit can be increased to Rs.500,000 and secondly, the LTA can also be permitted to be availed for international travel too.

These small changes may not make a very huge difference in terms of the government revenues. But they will be critical to put more money in the hands of the people. After all, the multiplier effect that the demand will create is something that the government will surely benefit from.

For more news and updates on Union Budget 2016, visit Religare Online.

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