The Union Budget is just around the corner and expectations are running high. Given the increased cost of living, one looks forward to initiatives that would increase consumption and promote growth. One hopes that Budget 2020 would lead to the consumer having more disposable income to spend which will in turn boost the economy.
To ensure that the middle-class taxpayer has increased disposable income, it is expected that Budget 2020 would re-look at the tax slabs and widen the same. It would be a very welcome change after six years.
Also, one expects that the limit of housing loan interest deduction in respect of self-occupied property may be increased from Rs 2 lakhs to a meaningful limit such that it encourages people to buy houses.
The Finance Minister Nirmala Sitharaman, in her maiden Budget 2019, had provided a tax holiday to developers for the construction of affordable housing and an additional housing loan interest deduction for the purchase of affordable house valued up to Rs 45 lakhs. Given the increased real estate rates and mortgage rates, one may hope for an increase in the limit of deduction as well as relaxation of certain conditions so that the benefit may be availed by more people.
To further boost the government’s objective of “Housing for All”, it is also expected that the current provision of setting-off of a loss from house property of a maximum of Rs 2 lakh may be re-looked at and the limit may be enhanced to Rs 4 lakhs.
Measures to encourage investment in equity to ensure liquidity for companies would be a relief in the current economic climate. The Finance Act 2018 had introduced income tax on long-term capital gains (LTCG) on sale of listed equity shares, units of equity-oriented mutual funds and units of a business trust at 10 percent on LTCG exceeding Rs 1 lakh. To boost investments in equity, it is expected that the government may consider any of the below options:
- Increase the exemption limit from Rs 1 lakh to Rs 3 lakhs,
- While it is possible that the government may reconsider LTCG on sale of listed equity shares, units of equity-oriented mutual funds and units of a business trust as non-taxable, the period of holding for considering these as long-term capital assets may be increased from 12 months to 24 months,
- Remove the levy of Securities Transaction Tax,
- Another welcome measure for the equity market would be a change in dividend taxation. The industry has been urging the government to review taxation of dividends and re-introduce the classical system where dividend is taxed in the hands of shareholders. It is expected that taxation of dividend may see some changes in forthcoming Budget that would ensure that there are no multiple layers of taxation for equity income,
- When it comes to saving instruments, the types of instruments where relief for interest earned is available is different for different categories of taxpayers, adding complicity to tax laws and making it burdensome for the average taxpayer,
- While limits for senior citizens and non-senior citizens can be different, the type of saving instruments for which reliefs are available should be aligned. An increased deduction limit from Rs 10,000 to Rs 25,000 for non-senior citizens would also encourage more savings,
- It is also expected that deduction for interest income from additional types of saving instruments could be made available. For instance, interest on deposits with Non-Banking Financial Corporations (NBFCs) may also be made eligible for a deduction, as a measure to address liquidity issues faced by NBFCs,
- Rather than giving separate deductions for ELSS, interest on deposits, etc, it may be worthwhile to give a thought whether the limit of Section 80C should be increased substantially, subsuming the limits available under various separate sections covering investments of equity, debt and hybrid nature,
- Encouraged by the success of Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, the government may announce a litigation settlement scheme which will provide a faster solution than long drawn-out litigation. The government may institute a mediation mechanism and try to resolve tax disputes at the assessment stage itself, in a time-bound manner.
While one can be hopeful about the above, the clock is ticking away, and 1 February will soon reveal how many of these expectations turn into reality.
(The writer is Tax Partner, EY India. Gayatri Pillai, Senior Tax Professional, EY also contributed to the article)
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Updated Date: Jan 29, 2020 10:27:54 IST