With the Budget due next month and the upcoming elections in the picture, there is heightened curiosity amongst people about what’s in store for the next financial year.
While there is enough precedence of not making changes via the interim budget, inclusion of favourable tax and economic policy changes certainly has political ramifications. There is also some speculation that since this will be the final budget to be presented before the Lok Sabha elections, there is likely to be a departure from the norm around interim budgets.
Budget 2018 had a lot of surprises for the salaried class people. This included reducing the tax rates for the 2.5 lakh - 5 lakh slab from 10 percent to 5 percent, and replacing transport allowance and medical reimbursement with the standard deduction of Rs. 40,000.
On a personal front, salaried individuals will hope that the tax slab rate is modified for individual taxpayers. Levying a higher rate of tax for those earning in excess of 20L and reducing the burden on small taxpayers is probable in this scenario.
The other area of expectation is regarding the possible increase in the 80C deduction limit. As per the current Income Tax Act, the tax deduction limit on investments stands at Rs 1.5 lakh annually. Individuals, however, have strongly vouched for a revision of this limit. The ask is for shifting the tax deduction limit from the existing Rs 1.5 lakh to Rs 2 lakh. The shift may seem big but given the rate of inflation and the present state of the economy, the ask is not one without reason.
On the same note, on the personal front, individual taxpayers want some changes to the long-term capital gains tax that is levied on equity returns. While LTCG tax is applied without any changes if one decides to move from the growth option of investment to the dividend option, or the other way around, the same is not for some other schemes.
For instance, shifting one’s investment from debt to equity, like in the case of a ULIP or National Pension Scheme or the reallocation of funds do not qualify as a taxable event. People have asked for uniformity in the way taxes are levied when there are switches between schemes.
Another expectation that many taxpayers have is regarding the NPS rules. As per the announcement of new rules for NPS, an increase in the government's contribution to the central government employees from the existing 10 percent to 14 percent has been proposed. Also, the withdrawal of 60 percent is proposed to be made tax-free which was earlier at 40 percent only. The ambiguity about which taxpayers are included; central government or self-employed or those working in the private sectors will likely be clarified in the upcoming Budget.
While there are many aspects of the budget that taxpayers want clarity and relief from, these are some of the pressing areas of personal taxes that have been on most minds in the run-up to the interim budget.
(The author is founder and CEO, ClearTax)
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Updated Date: Jan 23, 2019 12:48:34 IST