Tweak Income Tax slabs – A Budget Agenda for Common Man
Tweak Income Tax slabs – A Budget Agenda for Common Man.
Year 2016 has been historic in Indian finance with PM announcing demonetization on 8 November. For the entire nation, it was a bolt from the blue. For days, citizens stood for hours queuing to withdraw their hard-earned money. Earning money has always been hard. Now withdrawing your money was even harder.
Various reports of people falling ill, unable to get treatment, small traders losing out 60-70 percent business all due to lack of cash came from all over India.
While the government wanted to catch the income tax evaders and the corrupt, the law-abiding, tax-paying common people ended up facing maximum hassles. So, taxpayers want some benefit, some gesture of goodwill from the government in the form of income tax benefits in lieu of their hardships.
The government through its Income Declaration Scheme for tax evaders has collected about 67,000 crores. Recent reports indicate a 12 percent increase in direct tax collections and 25 percent increase in indirect tax collections, for the April-December 2016. With the additional money flowing the government is likely to reduce the burden of taxes.
The same tax slabs having been continuing from 2014-15 even though cost of living has increased drastically. It is highly anticipated that the government will increase the minimum income threshold limit to 3,00,000 for residents below 60 years (currently at 2,50,000). For residents between 60-80 it is expected to be 4,00,000 (currently at 3,00,000). For super senior citizens above 80 years, tax slab may be increased to 6,00,000 (from 5,00,000).
Increase in deductions U/s 80C
Currently, we get Rs. 1,50,000 as deduction u/s 80 C which was last increased in FY 2014-15. It is expected that FM Arun Jaitley, will increase it to 2,00,000. PPF investment per year should also be increased to 2,00,000 accordingly.
National Pension Scheme NPS
NPS is still not very popular in India. It is confusing to taxpayers about how to make the most of Tier 1 and Tier 2 accounts. Investment in Tier 1 account is eligible for tax benefits. There is little clarity around how withdrawals from these Tier 1 and Tier 2 accounts shall be taxed. Clarity around these rules will help attract investors to this product.
Low risk government investment schemes
The bank fixed deposit rates have fallen after demonetization. This has badly hit the middle -class (especially the retired). The government may launch some low-risk investment schemes, especially for the senior citizens, to counter the falling bank rates.
Affordable housing measures
Budget 2016 offered benefits to individuals with house loan amounts up to Rs. 35 lakhs where loan has been taken during the 2016-2017. A maximum of Rs. 50,000 of interest on house loan could be claimed as deduction U/S 80EE. This was in addition to the normal housing interest deductions of Rs. 2,00,000. These benefits might be extended to loans taken during FY 2017-18 period to promote housing-for-all scheme. Moreover, there might be additional tax breaks for those involved in the construction of such affordable housing.
LTCG on securities
Currently, sale of equity shares with one year after its purchase, is considered as long-term capital gains. And tax on LTCG of sale of shares is exempt if STT has already been paid. For short term capital gains on shares, 15 percent tax is applicable.
The government may change the holding period from 1 year to 2-3 years to encourage people to stay invested for longer term. This may help the government ramp up tax collections from short term gains, as well as give people more time to plan their short-term selling.
With the common man still reeling from the after-effects of demonetization, we expect, the government will likely soften the tax burden in the coming Budget.
Source: First Post