Budget 2019: Govt should consider increasing deduction under 80C to Rs 3 lakh or more per annum; raise limit for tax saving investments

  • The limit of income-tax deduction for interest payable on housing loan on self-occupied properties is very low at Rs 2 lakh per annum

  • Deduction under Section 80C of the Income-tax Act, 1961 is Rs 1.5 lakh per annum for various common tax saving investments

  • The various exemptions currently provided to salaried individuals need reconsideration

Generally, it has been observed in the past that major income-tax proposals/amendments are not announced in the Interim Budget and the newly elected government post elections comes out with a full year budget. Therefore, it will have to be seen whether the finance minister (FM) would deviate from this trend in the upcoming Interim Budget or not as the common man has some expectations on personal income taxes, as under:

Income up to Rs 2.5 lakh per annum is exempt from tax. The limit set is relatively low as compared to various countries worldwide and has remained constant since FY 2014-15. With the objective of enhancing the net disposable income, this limit may be revised to Rs 3 lakh or higher. Also, the maximum tax rate of 30 percent triggered at an income exceeding Rs 10 lakh per annum may reasonably be enhanced to Rs 20 lakh per annum. Subsequently, the other slab rates should be adjusted basis the revised limits. At the same time, the government would also need to assess the impact of such changes on the fiscal deficit and taxpayers required to file tax returns.

Deduction under Section 80C of the Income-tax Act, 1961 is Rs 1.5 lakh per annum for various common tax saving investments/expenditure. This limit has not kept pace with the rising inflation and has been kept constant since FY 2014-15. The finance minister may hence consider increasing this to Rs 3 lakh per annum to provide impetus to consumer spending to spur demand and also encourage individuals to meet their savings goal.

 Budget 2019: Govt should consider increasing deduction under 80C to Rs 3 lakh or more per annum; raise limit for tax saving investments

Representational image. Reuters

The limit of income-tax deduction for interest payable on housing loan on self-occupied properties is very low at Rs 2 lakh per annum. Such a limit may be considered to be doubled to Rs 4 lakh per annum to provide the much needed helping hand to both, the real-estate sector and individuals. It will also provide impetus to the affordable housing initiative of the central government.

The various exemptions currently provided to salaried individuals need reconsideration as they were introduced many years back and have been kept constant for more than a decade now.  Hence, there is a case to consider to enhance these limits say children education allowance limit from Rs 100 to Rs 500 per month per child, children hostel allowance limit from Rs 300 to Rs 1,500 per month per child and meal vouchers from Rs 50 to Rs 100 or 150 per meal.

Medical reimbursement and travel allowance exemption done away with by last year’s Budget may be restored with higher limits (say medical reimbursement up to Rs 50,000 per annum and travel allowance up to Rs 3,000 per month) to keep pace with ever-rising medical and fuel cost.

As per a recent press release by the central government, a proposal to enhance income-tax exemption limit on lump sum withdrawal by the National Pension System subscriber at the time of retirement from existing 40 to 60 percent of the accumulated corpus has been approved by the Union Cabinet amongst other proposals. It is expected that the Budget would pave the way for the implementation of the proposed changes.

The expectations and wish lists on personal taxes can be several for an individual taxpayer. However, it will be interesting to see how the finance minister does a balancing act between fiscal consolidation objective vis-à-vis aforesaid expectations of the common man through the interim budget on 1 February 2019.

(The writer is Partner and Head, Global Mobility Services – Tax, KPMG in India)

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Updated Date: Jan 28, 2019 13:26:38 IST