So finally it is time for our annual column before the much awaited Union Budget. As we have mentioned before, 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. We have said it before and we will say it again – it is unfathomable why governments, one after another, irrespective of their party or politics, turn a blind eye to this significant constituency. In fact, it is this only constituency that prepays its taxes to the government month in month out through the system of TDS. It is said that a good government should treat its citizens just as a successful business would treat its customers. In that case, the salaried should form the list of the most important customers – those who not only pay – but actually prepay their dues year after year. 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 Rs2 lakh from Rs 1.50 lakh – 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 capitalise the interest at say 10% p.a., the amount of loan on which the deduction is available will work out to Rs20 lakh!! What property is available nowadays for Rs20 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.
Transport allowance: While transport allowance deduction for the commute between home and the work place has been increased – once again the increase is not in tune with ground reality. 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: Then there is the issue of deduction for medical expenses.
Spiraling health care costs are a reality and there is no system of government sponsored health plans. In such circumstances, the current limit 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.
Education: The government wants to encourage education. However, education allowance for children has remained static for over twelve years now at Rs100 per month per child for a maximum of two children (earlier it was Rs 50). Ditto for hostel allowance at Rs300 per month per child.
Deduction on rent paid: Then there is actually one area where the salaried are better off than self employed people. Or more precisely, those self employed persons who stay in rented places. 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 was a meager Rs 24,000 per year. This was increased to Rs 60,000 per annum in the last year’s Budget.
However, even after the change, it still remained meager. An urgent change to a number more meaningful and in tune with reality is required.
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. There have been media reports that beneficial amendments are going to be brought in, in this year’s Budget. We shall wait and see what happens.
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.
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. Watch this space for the Budget update.
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