As an upshot to the demonetization drive in India and bearing in mind the cash crunch faced by the common man in its wake, there are widespread expectations of benefits being passed out in the Union Budget 2017, oriented towards the common man. It is likely that the common man, gripped with cash insufficiency is hoping that Finance Minister may utilise some of Government’s surplus from demonetization to subdue the cash ban.
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One of the expectations from the Budget is that it may seek to strengthen the in-hand income of the taxpayers which could amplify their savings and expenditure. Few of the measures which are anticipated to pacify tax cost of salaried individuals have been deliberated below:
Revamping of the tax slabs
There is a general belief that huge amounts recovered by the Government under demonetisation or income declaration schemes may be transferred to common masses by reorienting tax rates and tax slabs for individuals. The existing basic exemption limit of Rs 250,000 is much less as compared to various other countries in the world and perhaps could be enhanced. Further the current tax slab providing for the maximum rate of 30 per cent levied on income exceeding Rs 10 lakh is also on the higher side. Thus, the maximum rate of 30 per cent could be reduced and slab of Rs 10 lakh on which such maximum rate is levied could also be revised upwards.
Potential comeback of Standard Deduction
A standard deduction was earlier available to salaried individuals from their taxable salary income which was abolished with effect from Assessment Year 2006-07. The Standard Deduction was provided as a lump sum deduction for meeting expenses connected with salaried income. The standard deduction for salaried employees could be restored keeping in mind the rate of inflation and purchasing power of the salaried individual to boost the salary available for disbursement.
Tax Benefits on Housing Loans
To gear up for the Prime Minister’s mission of ‘Housing for All by 2022’, the maximum limit of deduction for interest on housing loan in case of a self-occupied house property could be increased from the existing limit of Rs 200,000. Also, deduction in respect of interest on housing loan is available from the year in which property is acquired/ constructed. Interest for pre-construction period is allowed as the deduction over a period of five years starting from the year in which property is acquired/ constructed. While the tax payer pays interest on housing loan starting from the year in which loan is obtained, the tax benefit can be availed only once the construction is complete. Thus, the deduction for such interest on housing loans should be allowed from the year in which interest is paid irrespective of the actual construction.
The deduction for the repayment of the principal part of home loans is clubbed under section 80C and maximum deduction available under this section is capped at Rs 150,000. Such a deduction for principal repayment could be allowed on a standalone basis and should ideally not be clubbed with section 80C. The refurbishment of tax sops on housing loan can not only encourage the masses to accomplish their dream of owning a home but could also aid the bankers in disbursing the surplus cash parked in their treasury.
Raising the deduction limit under section 80C
The deduction under section 80C is currently limited to Rs 150,000. However, perhaps too many investments/ expenditures are clubbed in the composite limit of Rs 150,000. Considering the threshold, individuals are sometimes discouraged from making further investments. Thus, the Government should consider increasing the overall exemption limit of section 80C to boost the investment scenario for individuals.
Deductions for Medical Reimbursement
Medical costs in India have been rising at an alarming rate owing to the increase in the cost of medicines and private hospitalization charges. Tax-free medical reimbursements are currently capped at Rs 15,000 per annum which is negligible in comparison to the cost incurred by the taxpayers. Thus, the limit could be made more realistic and should sync with current requirements.
Tax Incentives for the Education of Children
Education for children features high on the priority list of parents. An education allowance of Rs 100 per month per child up to two children currently available could be revamped considering the mounting education costs these days. The deduction for tuition fees of children available under section 80C of the Income-tax Act contributes only little to education bill of parents. Also, considering the huge list of eligible deductions under section 80C, it is desirable that scope of deduction should be increased to include other components of fees and the deduction could be declined from section 80C to be provided on a standalone basis.
Deduction in respect of interest on deposit in Saving Account
As a consequence of demonetisation, a lot of cash has been deposited in the savings bank accounts by individuals. Section 80TTA was inserted by the Finance Act, 2012 to provide the deduction of up to Rs 10,000 in the hands of individuals and HUFs in respect of interest on savings account with banks. An increase in the limit of deduction under this section and extending the deduction to fixed/ term deposits/ recurring deposits etc. may incentives individuals to retain cash in such accounts thereby inducing savings for the growth of an economy.
While the wish list for salaried individuals is likely to be never ending, the above measures may aid in improving their cash-strapped positions and make it less taxing for them. With expectations soaring high, hopes are that Budget 2017 shall woo the taxpayers with significant tax relief.
Source from:- .Financialexpress.com
