10 Essential Allowances For Middle-Class Tax Payers

Published: February 08, 2016 15:19 IST
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As a former tax man and a middle class provider, here's what the Budget should keep in mind for salaried tax payers like you and me:

1) Tax Exemption Limit - needs a hefty upward revision from the present 2.5 lakhs. Though the exemption has been raised periodically over a period of time, the increase has been frugal and sadly out of step with the market place. Let's take the "cinema ticket" test. Before the advent of multiplexes, a balcony ticket cost Rs 100. The snacks in the cinema lobby cost no more than Rs 100. The total cost was Rs 500 for a family of four. Now, a multiplex ticket costs 250 bucks a pop, the snacks inside will set you back a minimum of Rs 500, and the dinner thereafter that your family insists on, at least Rs 2000 (if you eat like a pauper and drink only a Coke). That's a grand total of Rs 3,500 To see Prem Ratan Dhan Payo one has to cough up 7 times more than what was spent on Maine Pyar Kiya. Alas, the exemption hasn't moved up at even half this rate. This is, of course, a rough and ready example, but you get the drift. The limit needs to set at a minimum of Rs 5 lakhs with corresponding increase for senior and super-senior citizens. Additionally, standard deduction of 10% on salary up to a limit of Rs 2 lakhs should be provided for.

2) Medical Re-imbursement, currently pegged at Rs 1,250 per month, is abysmally low. While employees in their 20s/30s may not need medicines to such an extent, with age and family come medical expenses way beyond this limit. A root canal by a halfway decent dentist costs thrice that much. A visit to a specialist doesn't come cheap. I would urge for Rs 5,000 a month.

3) Transport Allowance of Rs 1,600 a month to commute to office and back is ridiculous. With towns and cities spreading outwards like molten lava, this amount cannot take you too far unless you are expected to take public transport. Forget taxi, even a three-wheeler is out of the question. The allowance needs to go up to Rs 5,000 per month.

4) Education Allowance is actually a joke; 100 bucks per child per month up to a maximum of two children! Either don't have this allowance at all, or keep a realistic amount. Rs 100 means a municipal school or some such. At least Rs 1,000 a month.

5) Hostel Expenditure Allowance is an even bigger joke; 300 bucks a month per child up to a maximum of two children. Probably, somebody forgot to add a zero. Anyway, this figure deserves to be trashed. Minimum Rs 5,000 per month per child.

6) Deduction of Bank Interest on Housing Loan - is allowed up to Rs 2 lakhs a year. So if you take a loan to buy or construct a house to live in, you would need to take a loan of Rs 20 lakhs or below, in order for the interest (which comes to about Rs 2 lakhs at the current bank rates) to be tax exempt. But with the real estate market turning crazy and property prices shooting through the roof, a 20 lakh house exists only in the realm of dreams. A colleague applied for a two-bedroom house in a central government housing scheme project in Greater Noida for Rs 45 lakhs. The construction hasn't commenced and will take four years when it starts. His interest outgo will be more than 4 lakhs - twice the current limit. To expect employees to shell out usurious construction costs, and also deny them tax exemption on the entire interest liability is a double whammy. The deduction needs to be based on the actual interest paid, rather than be capped. This is the only equitable solution.

7) Pension is normally 50% of the last salary earned. Tax on pension is a highly regressive step. The expenses and standard of living do not come down by half one day after you retire. There are, in fact, additional expenses on family commitments and medical expenses. Facing a tax bill on a suddenly truncated remuneration is a big blow. If not this, at least eliminate tax on family pension given to widows. This is half the regular pension and the husband's death doesn't mean that expenses have halved.

8) ESOPs - the difference between the market value of shares allotted and the actual price paid by the employee is taxed. This can negatively impact the employee. The share price may go down and the tax paid on the higher amount is, therefore, a wasteful expenditure. Sometimes, loans are given to employees against the security of shares. If the share price goes down, the employee has to either shell out the difference, or compulsorily sell any future ESOPs given to him (on allotment of which he again needs to pay tax). There is also a larger issue involved here. The movement of share price is dependent on various market forces, not necessarily the company's performance and the employee's role in it. To be penalized for fall in share price on which taxes have been paid is most unfair. A free allotment will enthuse the workforce and earn their loyalty and industry.

9) Deductions on Savings is limited to 1.5 lakhs which is a very modest figure given the increasing salaries over the years, and the thrifty habits of Indians. Needs to go up to 2.5 lakhs. The more the savings in the country, the more the growth , so tax foregone by increasing the limit can be more than compensated by the positive impact on the economy and upswing in revenues.

10) Leave Travel Allowance - I remember vividly my mother mentioning that a teacher in her school had retired and that glowing tributes were paid to her for not availing a single day's leave throughout her long career. Whilst serving in the government, one instructor in our training academy very proudly used to tell us that on the day of his wedding, he only took half a day as casual leave. I don't know what it is about Indians flaunting their no-leave policy as a badge of honor. All play brings about mediocrity, staleness, and burn-out, disrupts work-life balance, and adversely impacts family life. The primary reason why many employees do not take leave is financial. Unavailed leave can be encashed subject to limits which are very generous. So I would like to see this scrapped. Employees should be compulsorily sent on leave. Cashing out should not be allowed. But hold it! We thought gifts would be coming our way; here you are, recommending abolishing a valuable cash stream. Whose side are you on, I hear you ask, I urge you to stay with me throughout this discourse. To compensate for the withdrawal, employees should be granted Leave Travel Concession (LTC) every year instead of once in two years. And they should be allowed to go anywhere in the world - not just India, as at present. The maximum fare can of course be restricted to the rate between the two farthest points in India. In any case, many international sectors cost less than the domestic ones. The forced travel every year with the family will do wonders for family bonding, discovery of India and beyond.

If all the above proposals are considered favorably, you will notice that what the left hand taketh, the right hand giveth even more.

(Ajay Mankotia is President, Corporate Planning and Operations, NDTV)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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