Vikas Vasal, Executive Director, KPMG
It is human nature to expect more, every time. Similar is the
situation this time wherein individual tax payers have lot of
expectations from the new UPA Government which is going to announce
its Budget shortly. On one hand, there is an expectation to lower the
tax rates while on the other hand there is an expectation to increase
the social and infrastructure expenditure. Therefore, it is always a
tough task for every Finance Minister to balance out different
expectations while preparing the Budget.
Nevertheless, few of the key expectations of the common man from this
year's Budget are as follows:
Revision in tax slab rates for individuals
It is a fact that in the last one year, individuals and families have
faced many challenges in respect of their income and expenses. The
global economic slowdown, has impacted the Indian industry and
business, which in turn has put pressure on the income levels, job
security, etc., for the individuals. Therefore, there is lot of
expectation from the individuals to provide some relief from tax this
year. Currently, the minimum amount not chargeable to tax for
individuals is Rs.150,000. This should be raised to Rs.250,000.
Correspondingly, for females this limit may be increased from
Rs.180,000 to Rs.300,000 and for senior citizens this should be
revised from Rs.225,000 to Rs.350,000.
The highest tax rate of 30% is triggered at a very low level of income
of Rs.500,000. This limit should also be enhanced to Rs.1,000,000.
This will provide more disposable income in the hands of the
individuals and hence boost the consumption, saving, and investment in
the economy. This in turn will help the corporate sector which is
facing recessionary pressure owing to global economic crises.
Reduction in peak rate of 30%
The maximum rate of individual income tax is 30% which with surcharge
and education cess amounts to 33.99%. This is on higher side as
compared with other countries like Russia, Hong Kong, Singapore, etc.
Further, under the current tax provisions not many
exemptions/deductions are available to the individuals especially the
salaried individuals. Therefore, the peak rate of 30% should be
reduced to 25%. This will increase the purchasing power of the
individual and stimulate demand in the economy.
Surcharge on tax for individuals
Surcharge @10% on tax is levied if total income of an individual
exceeds Rs.10,00,000. Surcharge was introduced as a short term measure
to collect revenue to meet certain contingencies being faced by the
country. Therefore, the intention of levying surcharge was always for
specified reasons and for a particular period of time. Hence, the
surcharge should be removed.
Limits for deduction u/s 80C
Currently, the deduction allowed u/s 80C of the Income-tax Act, 1961
(the Act) is limited to Rs.100,000 for different investments/ expenses
incurred by individuals. In view of the fact that there is no
comprehensive social security scheme in India, (though a good
beginning has been made recently with the New Pension Scheme) that
could provide support and take care of individuals after their
retirement this limit is very low in today's context. Therefore, this
limit should be enhanced to say Rs.200,000 per annum.
Separate deduction for education expenses
Education is the backbone for long-term development of any society.
India is no exception. A large majority of the individuals in our
country still struggle to meet their ends meet. Therefore, providing
quality education to their children still remains a distant dream even
after more than 60 years of independence.
The Government had earlier provided relief in this context by allowing
deduction upto Rs.100,000 u/s 80C in respect of expenses incurred
towards tuition fees in any university, college, school or any other
educational institution. This deduction is, however, clubbed with
other investments u/s 80C, even though; it has a very different
objective to meet. Therefore, a separate deduction of upto say
Rs.100,000 for education expenses incurred on the education of the
children/other family members should be allowed. Also, as a family
planning measure, this limit may be restricted upto Rs.50,000 per
child upto a maximum of two children, upto 18 years of age.
Re-introduction of standard deduction
Salaried individuals pay tax on their gross salary. No deduction is
allowed to them while computing the taxable salary in comparison to an
individual engaged in business / profession. In today's times, it is
equally essential for the salaried individuals to keep abreast with
the latest developments in their area of work/specialization. For this
purpose, they incur expenses on journals, magazines, trainings etc.
that may not be paid for by the employer. Further, the concept of
"home offices" is becoming popular, which again entails additional
costs for the salaried employees that are not picked up by the
employer. All these expenses are in the nature of official expenses in
the true sense to earn salary income and are not merely personal
expenses.
As against this, other individuals who are in business or profession
are able to compute their taxable profits by claiming various expenses
that are essential for carrying on such business/profession.
As an outcome, there is a disparity between the salaried employees and
those carrying on business / profession, resulting in higher tax being
paid by the salaried employees.
To bring in the necessary parity amongst individuals, the government
should reintroduce the standard deduction that was allowed earlier.
Approximately 20% of the gross salary, subject to a maximum limit of
say Rs.50,000, could be considered for the purpose of standard
deduction.
Medical reimbursement by employer
The non-taxable medical reimbursement to the salaried employees by the
employer is limited to Rs. 15,000 per annum for self and dependents.
This amount is very low as medical expenses have witnessed substantial
increase in the last few years. A re-look in this matter to enhance
the limit, with adequate checks to curb misuse of claiming frivolous
expenses, is desirable. The limit could be increased to Rs.50,000 per
annum to provide genuine relief to the employees.
Further, there is no significant loss to the revenue as Fringe Benefit
Tax (FBT) is paid by the employer on the non-taxable portion of the
medical expenses.
Transport allowance
Transport allowance is presently exempt from tax to the extent of
Rs.800 per month i.e. Rs. 9,600 per annum. This exemption is on
account of conveyance expenses incurred by the employee on travel from
home to office and back. Keeping in view the rising transportation
costs, the amount of exemption does not compensate for such expense.
Therefore, this limit should be enhanced to provide relief to the
employees. A more realistic limit would be Rs.2,500 per month.
Alternatively, if the amount is not proposed to be increased, this
allowance could be removed altogether and the slab rates for taxes
increased accordingly to provide relief in respect of transport
expenses incurred by the employees.
Education loan for higher studies
At present, deduction u/s 80E of the Act is allowed on interest for
education loan taken for certain specified courses. The principal
amount is however, not allowed as deduction. Prior to the amendment in
this section, both the principal and interest amounts were allowed as
deduction subject to specified limits.
As education is one of the important focus areas of our government
(for which even education cess is levied on tax payers), it is
desirable that repayment of principal amount is also considered for
claiming deductions.
Interest on house property
The present limit for claiming deduction u/s 24 of the Act on interest
paid for loan taken on house property is restricted to Rs.150,000 for
a self occupied house. Keeping in view the upward revision in the
interest rates on housing loans and the ever increasing property
prices, it is only practical that this upper cap be enhanced
substantially to provide some relief from the high interest burden.
Accordingly, the limit could be increased to Rs.250,000.
Loan linked to construction period
It is pertinent to note that the interest deduction upto Rs.150,000 is
available only if the property so acquired or constructed is completed
within three years from the end of the financial year in which the
capital was borrowed. Most of the housing projects have been delayed
beyond their original completion dates and are taking more than three
years to complete. The aforesaid time period of three years should be
enhanced to five years, as in most cases, this delay is beyond the
control of an individual, who has taken the loan.
Adjustment of refund
Presently, there is no specific provision whereby an individual can
adjust the refund granted in a particular year against the tax payable
in the subsequent year. As a result, the individual pays tax for
subsequent year, while he simultaneously claims refund from the tax
authorities for the earlier year. This results in cash flow issues for
the individuals.
As a matter of procedural relief any tax refund to be granted by the
tax authorities may be allowed to be offset against the tax payable in
the following year.
Credit for foreign taxes for the purpose of TDS calculations by the employer
As per Double Taxation Avoidance Agreement (DTAA) between India and
various countries, Indian residents employed overseas who have paid
taxes outside India are entitled to claim tax credit for the tax paid
outside India. Accordingly, the balance tax payable in India by such
residents is computed after allowing credit for the foreign tax.
This credit, however, can be claimed by the individual only in his
personal tax return at the end of the relevant year. The said credit
cannot be claimed at the time of computing the withholding taxes (TDS,
as is commonly understood) by the employer, which results in an
adverse cash flow situation for an individual. If the entire Indian
taxes are deducted and deposited by the employer during the year, then
claiming such credit in the tax return could result in a tax refund
situation. Therefore, specific provision should be introduced in the
Act to enable the employer to withhold taxes after allowing credit for
the tax paid by individual outside India on his salary income.
Age limit for senior citizens
Generally, the retirement age for individuals is around 60 years.
However, under the Act, a person qualifies to be senior citizens on
attaining 65 years of age. Therefore, the age limit for senior
citizens should be reduced to 60 years so that they can avail the
benefit of higher threshold in income tax slab rates.
New Pension Scheme – self employed
Even though every Indian citizen including salaried employed and self
employed is eligible to participate in the New Pension Scheme (NPS),
however, tax deduction u/s 80CCD is available only to salaried
employees. Therefore, this anomaly needs to be corrected by making
necessary amendment in the Act and thereby providing relief to all
individuals including non-salaried employees.
New Pension Scheme – EET
Currently, the NPS works on exempt, exempt, tax (EET) model.
Therefore, income/amount received finally at the retirement age would
be liable to tax. In contrast, the other retirement schemes like
Provident Fund ('PF'), Public Provident Fund ('PPF'), etc work on
exempt, exempt, exempt ('EEE') model. Therefore, in order to
popularize NPS and encourage individuals to participate in the scheme,
the EEE model should be extended to NPS.
To sum up
Like the corporate world, individuals have lot of hope and
expectations from the Finance Minister in the current year's Budget.
While the Finance Minister also has a challenging task to contain the
increasing fiscal deficit keeping in view the tough economic
situation.
Therefore, it is a tough road ahead, still with lot of hope!
**
No comments:
Post a Comment