Annual Budgets should normally be a statement of government finances. However, customarily, in our country, the Budget has become a forum where the government also declares its intended taxation and fiscal policy for the year. So if the Finance Minister indeed desires the upcoming Budget to be a memorable one, he would do well to pay special attention to the salaried class. So, here are a few things that Mr. Jaitley can do this year is to bring a smile his customers’ face:
Restoration of standard deduction: Homeowners / landlords get a 30% standard deduction. Businessmen can set-off every expense that they incur to earn income. Then why treat the salaried differently? A specific amount per annum or a fixed percentage of salary should be allowed as a standard deduction for the salaried class.
Housing Loan Interest:
The other equally important tax deduction urgently in need of a revamp is the one to do with deduction on home loan interest. While it is true that the same was raised to Rs. 2 lakh from Rs. 1.50 lakh in last year’s Budget (Budget 2014) – however, if you consider the way property prices have skyrocketed over the last decade, even Rs. 2 lakh seems to be a pittance. If you capitalize the interest at say 10% p.a., the amount of loan on which the deduction is available will work out to Rs. 20 lakh!! What property is available nowadays for Rs. 20 lakh?? The interest deduction should be raised to at least Rs. 5 lakh in view of the manifold rise in property prices that have taken place.
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Transport allowance:
Given the general increase in fuel costs and consequently commuting costs, this limit should be increased to a level of Rs. 3,000 – 4,000 per month in the very least.
Increase in reimbursement for medical expenses:
Spiraling health care costs are a reality and there is no system of government sponsored health plans. In such circumstances, having a paltry limit of Rs. 15,000 in which the employee is expected to cater to the medical expenses of his entire family borders on the farcical. An amount of at least Rs 50,000 is required to make this deduction meaningful.
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Education: Education allowance for children has remained static for over twelve years now at Rs. 100 per month per child for a maximum of two children (earlier it was Rs. 50). Ditto for hostel allowance at Rs. 300 per month per child.
Deduction on rent paid:
Most of the salaried get HRA and the related HRA deduction. But if a self employed person were to pay rent, the deduction available to him is a meager Rs. 24,000 per year. Most people pay this much rent (if not much more) per month!!
Exemption Slabs, Tax Rates & Sec. 80C limit: This is the trifecta that affects the amount of tax that you and I pay. Lower taxes can only be brought about by making changes to one or more of either the basic exemption limit, the actual tax rate or tax deductions. As it turned out, Budget 2015 left all three untouched – sure, there were some enhancement of medical insurance and NPS limits – but the main investment oriented tax deduction – that of Sec. 80C – has been left untouched.
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Service Tax: Successive Budgets have kept increasing the Service Tax rate. The authorities have found a nice way in which they can keep the basic rate constant but at the same time charge more by calling the tax increase by some other name. Enter Swachh Bharat Cess.
Service tax (called by any name whatsoever), though an indirect tax, directly adds to our cost of living. Expenses on almost all amenities such as telephones, electricity, restaurants, transport, credit cards etc., are subject to service tax. As this service tax is passed on by the service provider, in effect, it is the common man, irrespective of his income, who bears it. Any increase therein would further add to the burden of the aam aadmi – something the government could have avoided especially in the current environment where general price levels remain elevated.
Also read: Tax filing – Set-Off & Carry Forward of Losses
To Sum
Apart from the above there are a few other issues such as applicability of exemption on capital gains to buybacks and open offers, taxation treatment of derivative transactions, distinction between a trader and an investor (as tax treatment for both differs) etc., that have long been left unaddressed. These are essentially legacies of previous years’ budgets where rules were changed but certain indirectly affected constituents of the system were left out.
The main hurdle against increasing exemptions and getting deductions more in tune with the times is the expected loss in revenue. However, the government should consider the fact that around 4 lakh people pay over 60% of the tax collected in the country. To make up for lost revenues the country’s narrow tax base will have to widen – several long overdue tax reforms will need to be introduced such as starting to tax agricultural income – in our country millionaire farmers don’t pay a single rupee of income tax.
Granted – effecting such reforms would be tough and there would be immense resistance from those directly affected. But a good government is a tough government. And to get the economy and the country back into shape, tough measures will have to be undertaken. Only then can we really look forward to acche din.
(The authors may be contacted at wonderlandconsultants@yahoo.com)
