No budget discussion is really complete unless you look at the personal taxation aspects. From limits to exemptions to rebates, this is a major area that gets influenced by the Union Budget. Here is the bucket list.
Rationalize tax slabs further
In the interim budget 2019, the FM did not touch the income slabs. Instead, for all individuals earning a net income of up to Rs.5 lakh, the tax liability was given back to them as a rebate. This can still be unfair to individuals whose income is slightly above Rs.5 lakhs as they end up paying a steep tax. Rather, the government can make income up to Rs.5 lakh fully exempt and enhance standard deduction to Rs.1 lakh giving a huge relief to small tax payers.
Make exemptions realistic
One issue with the tax exemption limits is that they are out of sync with the real world. Take Section 80C. The limit has been at Rs.1.50 lakhs for more than 18 years while list of eligible investments has been expanded. This limit must be enhanced, at least, to Rs.3 lakh so that individuals can actually benefit from planning their taxes and also encourage investments in the process. The Budget also needs to look at Section 24 for interest paid on home loan. The Rs.2 lakh limit must stand enhanced to Rs.4 lakh with immediate effect so that it reflects realty prices in India.
Cut down the process time
The budget must really do a rethink on the process front. A lot of time and effort is being spent by the tax department without any concomitant benefits. For example, there is no need for people above Rs.2.50 lakhs to file returns. The Form 16 or Form 26AS should be good enough. Only individuals earning above Rs.5 lakhs should be asked to file returns and that saves a lot of time and effort and enables officers to focus on the more important issues. An increase in the number of returns does not really add any value if the income tax revenues are not growing. The focus should be more on tax efficiency rather than on numbers.
Time to cut corporate taxes
Former finance minister, Arun Jaitley, had promised to cut corporate tax rates from 30% to 25%. However, this benefit was subsequently restricted only to companies with total turnover of less than Rs.250 crore. Indian companies still pay too much tax and that is having an impact on performance. The bare minimum that the government must do is to scale down the tax rates by 5% and also cut MAT rates proportionately. If required, the government can do away with most of the non-merit exemptions so that the structure gets largely simplified. As India Inc struggles to get profits back, this tax cut could come as a blessing in disguise! ©