Partner and Leader Personal Tax, PwC India
As India looks forward to the presentation of Union Budget on 1 February 2018, expectations have already started building up. Be it the common man or senior citizens, or even those in the income bracket of Rs 50 lakh- Rs 1 crore hit last year by the 10% levy surcharge, all are anxiously waiting for some good news from the Finance Minister.
So far, the government’s demonetisation move has found emotional support from the public. Its incentives to digitize transactions, GST and efforts to promote entrepreneurship through Mudra Yozna are reforms expected to yield good results over a period of time. One major impact of this new environment is that the tax base would widen due to increased economic activity in the formal economy. This builds a case for some relief in the form of tax reduction.
This may perhaps be the government’s last full-fledged budget before the general elections next year. A few populist proposals are expected to find a place in Budget 2018.
On the economic front, India is growing faster than other countries, but probably not at the pace the government wanted. The government is likely to push exports and give impetus to manufacturing. Some relief for industry may also find priority. Rising oil prices and managing fiscal deficit are factors that would weigh in the mind of the finance minister.
While a balanced approach seems likely to be the thrust of the Budget, there is expectation that something would be announced for tax payers, particularly for the lower income group. In this article, the author has captured the expectations various sections of the society has from Budget 2018.
The basic exemption limit may be raised from Rs 250,000 to Rs 300,000, thereby, leaving more money in hands of tax payers. Similarly, for senior citizens, basic exemption limit may get enhanced from Rs 300,000 to Rs 350,000.
Until 2004-05, the salaried class used to get standard deduction. In almost every budget, this expectation used to stand on the top of list, and this year too, it will be no different. Considering there is no separate deduction available to salaried class for claiming legitimate expenses incurred in performing their jobs, standard deduction may be re-introduced at 20% of the gross salary with a cap of, say, Rs 100,000. This will help in bringing this category of individuals at a par with business class, who can claim business expenses for tax purposes.
Currently any meal provided by an employer during working hours in office premises is exempt to the extent of Rs 50 per meal per day. This limit is felt to be too low by the employers and it is desirable that the meal limit be raised to Rs 150 per meal per day.
Increased cost of medical treatment calls for enhancement of the tax-free medical reimbursements by the employer from Rs 15,000 to Rs 50,000. Interestingly, this limit has not been changed since 1998.
Nowadays, the trend of Indians travelling overseas for vacation is on the rise. A t present, the tax relief for salaried class in relation to leave travel assistance (LTA) is restricted to two journeys within India in a block of four calendar years. Exemptions may be allowed every year on a financial year basis and international destinations may too be made eligible for exemption. It would also be good if the ambit of this relief is enhanced and other expenses, such as, boarding, lodging, etc., are made eligible for deduction, including air fare costs.
With increasing number of two-income nuclear families, there has been some expectation of tax break on crèche facility/allowance provided by employer.
Section 80C deduction comprises saving instruments, including expenditure on children education and repayment of principal housing loan, among others. The current limit is generally exhausted by mandatory contributions to the Employee’s Provident Fund and on repayment of principal for housing loans, or tuition fees in certain cases, thus, leaving no room for additional investment in other instruments. In light of this, the deduction may be raised to Rs 250,000 to incentivize taxpayers for long-term savings.
In addition, a separate deduction of Rs 50,000 per annum may be introduced for investment in Sukanya Samriddhi Yojana to promote savings for the girl child.
Currently, where one owns more than one residential property and the second property is not let out, the individual is required to pay tax on notional rent, as if the second property was let out. Even those who live in their own house, but rent out the same for part of the year, are also required to pay tax on the notional rent for the period they occupied their house during the year. For example, Mr A resided in his own house till December in Delhi and, thereafter, he got posted to Mumbai. He lets out his house for the remaining part of the year (December to March, i.e., four months). Under current tax laws, the individual is required to pay tax on the actual rent for a four-month period and also on the notional rent for the eight-month period. This is real hardship to such individuals who end up paying taxes on the notional for the period when they stayed in their own house. It is expected that amendment be brought in to remove such notional taxation and levy taxes on the actual rent only.
Deduction against interest on home loan taken for a self-occupied house property is restricted to Rs 2 lakh. The pre-construction period interest is eligible for deduction in five equal installments beginning with the year in which construction is completed. The limit for deduction for such interest, along with that year’s interest is restricted within the overall limit of Rs 2 lakh. Considering that the builder takes longer time to complete construction, there is higher interest charge and that merits enhancing the limit from Rs 2 lakh to Rs 3 lakh. Similar enhancement of limit (from Rs 2 lakh) should also be made which was put last year for adjustment of loss under the head house property against other sources of income. This will give a push to investment in the housing sector.
The Employees Stock Option Scheme (ESOP) has been a productive tool for attracting and retaining talent in the corporate world. At present, employees are required to pay taxes on the allotment of shares at the market value of the share as reduced by any amount paid by the employee (if any). Later on, when the employee sells the share, the resultant gain (difference between the sale value and the value at which employee paid the tax at the time of allotment plus price paid by the employee) are taxed as capital gains. Sometimes the actual sale of shares could result in a loss for the employee, if the market value of shares comes down. In such a situation, the employee suffers a double loss, namely tax outgo at the time of allotment of shares and loss on sale of shares.
Bringing back the old regime of one point taxation of ESOPs where it is taxed as capital gains at the time of sale only, would help to promote ESOP schemes and, particularly, help start-ups to retain talent. This is one of the ways to remunerate employees through non cash means and, thus, put lesser pressure on the much needed working capital to run a business.
Declining interest environment has adversely affected the senior citizen category. The scope of Section 80TTA may be expanded to cover interest on fixed deposits and/or other fixed return saving instruments, etc., as well. The limit may be enhanced to Rs 100,000 so that they are able to afford a reasonable standard of living.
At present, Section 80D provides for deduction of medical expenses up to Rs 30,000 on medical treatment of senior citizens above 80 years of age who do have any medical insurance. A similar benefit should be extended to all senior citizens. Keeping in view the medical requirements, a deduction of Rs 50,000 may be introduced for their routine medical expenses, such as, consultation, medical tests, physiotherapy, etc, where hospitalization is not needed.
Simplification of procedure
Over the last few years, we have seen the elevated use of technology and automation within the tax department. It calls for some benefit to the tax payers in the form of convenience and ease in filing while dealing with the tax authorities.
For the tax year 2011-12, it was notified that individuals were exempted from filing their income tax returns, if the total income is up to Rs 500,000 and subject to satisfaction of other prescribed conditions. Keeping in view of the fact that the tax authorities have details about high value transactions, individuals with simpler returns may be exempted from filing on similar lines as was notified earlier. This relaxation will lessen the burden on individuals and save time for tax authorities, which can focus on those who are not paying taxes.
Individuals playing a C suite role are generally required to report details of their overseas bank accounts in their individual returns, where they are authorized signatory in overseas bank accounts of their employers. There is a large scope of reporting required, including bank account number, date of opening account, peak balance during the year, etc. It becomes tedious for individuals who’ve left the organization during the year or retired, yet required to provide details to which they may not have access. It is desired that the scope of such reporting is restricted to fewer details, or removed for such individuals.
While one would come to know on February 1 to what extent the above expectations are met, the government is certainly serious of expanding the tax base. Tax authorities, in particular, has been chasing those who might not have paid taxes in the past.
The government is concerned about striking a balance between rich and the poor. It wouldn’t be surprising if the government extends relief to the lower income group upto a particular threshold, while the higher income group continues to be at the same level, unless the tax base indeed expands and gives comfort to the government that tax kitty will keep growing with lower tax rate.
(Views are personal)