Here are 5 tax cuts you can expect from new Finance Minister Nirmala Sitharaman's maiden Budget

The common man expects the new Finance Minister Nirmala Sitharaman to provide some more incentives on personal tax

Parizad Sirwalla July 04, 2019 10:20:58 IST
Here are 5 tax cuts you can expect from new Finance Minister Nirmala Sitharaman's maiden Budget
  • The common man expects the new Finance Minister Nirmala Sitharaman to provide some more incentives on personal tax

  • The maximum tax rate of 30 percent triggered at an income exceeding Rs 10 lakh p.a. may reasonably be enhanced to Rs 20 lakh p.a.

  • Maintaining fiscal discipline while providing impetus to higher economic growth will be an unenviable task for the FM

With the first Union Budget from the re-elected government on the anvil, the expectations of the common man on personal taxes are high. Whilst the Interim Union Budget 2019 provided some relief to middle-class taxpayers, the common man expects the new Finance Minister (FM) Nirmala Sitharaman to provide some more incentives on personal tax.

Some of the key expectations on personal tax front from Union Budget 2019 to be presented by the FM on 5 July 2019 are as under:

• Income up to Rs 2.5 lakh p.a. is currently exempt from tax. This limit 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. The Interim Budget 2019 provided some relief by enhancing the rebate from tax to Rs 12,500 which effectively translated into a payment of NIL tax by individuals having income below Rs 5 lakh. However, no changes were made to the existing slab of income and tax rates. This is also one of the key findings of KPMG in India’s Pre-Budget Survey 2019-20 (KPMG survey) wherein 74 percent respondents expect that such limit should be revised upwards in the upcoming Budget.

The maximum tax rate of 30 percent triggered at an income exceeding Rs 10 lakh p.a. may reasonably be enhanced to Rs 20 lakh p.a. Subsequently, the other slab rates can 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 the number of taxpayers who may not fall within the ambit of mandatory tax return filing requirement.

Here are 5 tax cuts you can expect from new Finance Minister Nirmala Sitharamans maiden Budget

File image of Finance Minister Nirmala Sitharaman. PTI

• Deduction under Section 80C of the Income-tax Act, 1961 (the Act) 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 FM may hence consider increasing this to Rs 3 lakh p.a. to provide impetus to consumer spending to spike up the demand and also encourage individuals to meet their savings goal. As per the findings of the KPMG survey, 51 percent respondents are of the view that a separate deduction should be carved out for housing loan principal repayment from the existing overall limit of deduction under Section 80C of the Act;

• The limit of the income tax deduction for interest payable on housing loan on self-occupied properties is very low at Rs 2 lakh p.a. Such limit may be considered to be doubled to Rs 4 lakh p.a. to provide the much-needed helping hand to both, the real-estate sector and individuals. As per the findings of the KPMG survey, 65 percent of respondents expect that such limit should be enhanced. It is also likely to provide a boost to the affordable housing initiative of the central government.

• Medical reimbursement and travel allowance exemption were done away in last year’s Budget; it may be restored with higher limits (say medical reimbursement up to  Rs 50,000 p.a. and travel allowance up to Rs 3,000 per month) to keep pace with ever-rising medical and fuel costs.

• As per the press release issued by the Ministry of Finance, Government of India in December 2018, a proposal to enhance income tax exemption limit on lump sum withdrawal by a 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.

Though expectations of a common man on personal taxes can be widespread, maintaining fiscal discipline while providing impetus to higher economic growth will be an unenviable task for the FM to perform. Thus, it would be interesting to see what tax reforms will be introduced in the Budget on this front.

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

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