Indians are paying too much in tax. This is not because our tax rate is high. When compared to other countries, the tax rate in India is quite reasonable. Individual taxpayers should follow the positive attitude of Prime Minister Narendra Modi. He said, “the glass is full, being half-filled with water and the rest with oxygen”.
Every year tremendous enthusiasm is created before the budget is presented. Various sections of taxpayers, except individuals, represent their issues to the finance ministry for consideration in the budget proposal. The budget proposals are made on the basis of current economic, political and social status of the country. Every taxpayer feels an impact of the changes brought in by the budget, directly or indirectly.
Businessmen generally plan their activities as per details in the budget proposal and maximize the tax savings. Individual tax payers are more interested in knowing the enhancement of basic exemptions or 80C deduction limit, than the details of the budget. The general feeling in individual taxpayers every year is that the budget is not as per their hopes and aspirations i.e., only half or even less of their expectations are met by the budget. But is it the real scenario?
The fact is that their glass is always full, half by the previous year’s changes brought in by the budget and the rest by tax relief i.e. owing to the current year’s budget. There is no scope for increasing the size of the glass i.e., the total tax benefits, keeping in view the economic situation in the country.
Taxpayers are mostly aware that they can claim deductions up to Rs. 1.5 lakh (for some it is still Rs 1 lakh because they are ignorant of various budget updates) through investments under LIC, PF, PPF, tuition fee and housing loan, among others.
Expectations from Budget 2016
Stop black money generation: There is a general pain of salaried taxpayers about paying taxes on each penny they earn, whereas a businessman does not declare his true income. Hence, they expect the government to catch the tax evaders before increasing any taxes on existing taxpayers. Cash transactions should be penalized and cash purchases should attract 20 percent TDS, similar to TDS on salary without PAN.
The logic being that even the subsidies to the poorest are now being transferred through bank to eliminate pilferage of cash from the process. Then why should there be other transactions in cash?
Increase savings in equities for retirement: Section 80C deduction limit should be increased from Rs 1.5 lakh to Rs 2.5 lakh. This will give scope to save taxes and control inflation. The additional investment should be diverted to retirement schemes based on equity or infrastructure only.
The investment should be allowed only through SIP. Saving for retirement is the need of the hour keeping in view the poor retirement planning by individuals, high cost of living, single unit families, increased lifespan and high inflation.
Stable tax laws: Tax laws should be fixed for a longer period, i.e., 5 years, so that the taxpayers can do an overall financial planning, keeping in view tax efficiency. Every year there are changes which create confusion and no significant benefit.
Increase tax base: Less than 4 percent are declaring income through ITR. This is way below the actual income as well as in comparison to other countries.
Allow deduction on principal repayment of education loan: Principal repayment should get deduction similar to home loans. This will ease the burden on families and help in creating a more educated society which is necessary for high growth.
Encourage NRI investment: NRIs should get more tax concessions for investing in equities and infrastructure, specially TDS provisions.
Encourage monthly tax savings: Tax deduction should be allowed on monthly investment instead of annual investment for disciplined investment.
Increase rent deduction U/S 80GG for self-employed: Self employed professionals should also be able to claim higher rent like HRA exemption for salaried taxpayers. Right now the exemption is capped at Rs 2,000 per month for rent paid by the self-employed.
Raise medical reimbursement: Exemption for medical reimbursement should be increased to Rs. 30,000 from existing Rs. 15,000 to meet the increased cost of medical services.
Revise transport allowance: The transportation allowance granted by the employer to his employee for commuting between the place of work and residence is tax-free to the extent of Rs 800 per month. This limit was fixed more than a decade ago, and needs to be revised upwards to at least Rs 3,000 per month, given the rising commuting costs.
Leave salary exemption to be Rs 5,00,000: Presently, leave salary is exempt on retirement to maximum of Rs 3,00,000 which was fixed in 1998. If we consider inflation alone, the limit may be increased to Rs 5 lakh.
Increase value of food coupons: Value of free food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal. Looking at present inflation, it should be Rs 100 per meal.
Staff loan limit may be increased: Interest free/ concessional loan to employees is exempt, whereas loan amount is not if it exceeds in aggregate of Rs 20,000. It would be good if this limit is revised to at least Rs 50,000.
The general sentiment this year is that the budget will be made to please taxpayers belonging to all the categories. Even if not all the things mentioned in the wish list gets implemented, the benefits given this year combined with the benefits given in previous years will delight taxpayers.
(The author is founder, TaxSpanner. Views expressed are personal)