Budget 2017 – Tax Payers hope for an Increase in Tax Slabs
Budget 2017 – Tax Payers hope for an Increase in Tax Slabs.
Budget 2017 – On Wednesday, individual taxpayers would be hoping for an encore of the July 2014 Budget, and an enhanced one at that. In that Budget — the first after the Narendra Modi government took charge — Finance Minister Arun Jaitley had raised by Rs.50,000 the tax exemption limit, the Section 80C tax-saving investment limit and also the deduction on interest paid on home loan for self-occupied property. No such luck in the next two Budgets despite broad hints and promises of better days ahead.
So, it’s been nearly three years now since big across-the-board tax relief was provided to the common man. Expectations are running high this time around. One, due to the pent-up demand and more importantly, as recompense for the cash crunch troubles brought about by demonetisation. Also, with key State elections round the corner, the government will hopefully want to keep the aam aadmi happy.
That there is a case for higher tax breaks for individuals was echoed by Raghuram Rajan too when he was RBI governor. From 2006-07 when section 80C was introduced until 2013-14, the limit stayed put at Rs.1,00,000.
Only in the 2014-15 Budget was the limit raised to Rs.1,50,000. But over the past decade, inflation has risen steadily, thus eroding the real tax benefit.
Room to hike benefits
So, there is room to hike the limit by several notches to recoup lost ground. Ditto for the tax exemption slabs which have been raised in minor instalments and intermittently over the years. Some tax experts think that the basic exemption limit should be linked to the rate of inflation and raised every year automatically.
By how much should the tax breaks be hiked in the upcoming Budget? Demands vary. Some have called for an increase of Rs.50,000 to Rs.1,00,000 in the tax exemption limit. That is, from the current Rs.2,50,000 to Rs.3,00,000 or Rs.3,50,000. Others have been more ambitious, demanding a doubling to Rs.5,00,000.
There have been calls for recast of the other tax slabs too. Neha Malhotra, Executive Director, Nangia & Company, Chartered Accountants, says, “The threshold at which the highest tax rate of 30 per cent kicks in (currently above Rs.10 lakh) should be increased, since a low tax rate encourages higher compliance.”
There have also been demands of introducing additional tax rates, say, 15 per cent for incomes between Rs.5 lakh and Rs.10 lakh, and higher rates thereafter. Other suggestions include re-introducing the standard deduction on salary income; this was removed in 2006. Some radical proposals include abolishing income tax altogether and replacing it with a banking transaction tax; such highly disruptive moves, though, seem unlikely, given the constraints and challenges in implementation.
On Section 80C tax-saving investments, there is expectation that the limit will be hiked by Rs. Rs.50,000, that is, from Rs.1,50,000 a year now to Rs.2,00,000. There are also hopes that the government will re-introduce tax-free bonds in the 2017-18 Budget.
The 2015-16 Budget had doubled the transport allowance exemption from Rs.800 to Rs.1,600 a month. Given the high cost of commuting in cities, there is hope for increase in this limit. Also, many other exemptions such as medical expense reimbursement (Rs.15,000 a year) and children’s education allowance (Rs.100 per month per child) have been at the same levels for almost two decades. There are expectations that such exemptions will be hiked to keep pace with time and inflation.
Home loan interest
Other demands in budget 2017 include a sharp hike in deduction on home loan interest for self-occupied properties from the current ₹2,00,000. The argument is that even modest houses in the country’s big cities cost upwards of ₹1 crore, and annual interest payments for loans on such houses easily exceed ₹2 lakh. But given that the demonetisation exercise has depressed both the cost of houses and loans, whether the government will oblige with higher tax breaks needs to be seen.
There are also hopes that unlike last year, this year’s Budget 2017 will desist from moves that reduce the attractiveness of the widely popular Employee Provident Fund (EPF) to give a fillip to the National Pension System (NPS).
Last year, the Budget sought to make a portion of the EPF corpus taxable, but had to backtrack following a public protest storm.