This Article is From Jan 20, 2020

Revision In Tax Slabs, Section 80C Limit On Common Man's Wish-List

After reducing the corporate tax and Goods and Services Tax (GST) rates, Finance Minister Nirmala Sitharaman sought suggestions on relaxation of personal taxes at an interactive session recently. This has intensified the expectations of the common man from the upcoming Union Budget 2020.

Here are a few expectations which are on the wish list of the common man:

Restructuring of personal income tax slab rates

With the recommendations of the Direct Tax Code (DTC) to increase the disposable income in the hands of the individual taxpayers, it is expected that the tax rates will be revised to 10 per cent for those with taxable income over Rs 5 lakh and up to Rs 10 lakh; 20 per cent for income over Rs 10 lakh and up to Rs 20 lakh, and 30 per cent for income levels above Rs 20 lakh.

Increase in the current Section 80C cap

The current cap of Rs 1.5 lakh does not provide much scope to taxpayers to diversify their investment portfolio and at the same time leverage on tax benefits. Also, for the salaried class, this rebate gets easily exhausted with the contribution to Employees Provident Fund (EPF). Hence, there is a need to enhance the limit to at least Rs 2.5 lakh to promote investment in various tax-saving avenues.

Enhancement of the limit on claiming loss from house property

The present tax regime has adversely impacted the individuals having income from a let-out property due to a rise in the housing cost and interest on home loan. It is hoped that the existing limit of Rs 2 lakh is enhanced for setting-off the loss from house property. This will boost the investments in real estate sector and will go a long way in achieving the government's objective of "housing for all".

Making NPS more attractive for investors

Numerous surveys have shown that Indians score low on retirement goals. Despite the many advantages that NPS offers during the post-retirement sunset days, it is still not the first choice of many investors. It is expected that the government enhances the ceiling for claiming deduction for self-contribution to NPS from existing Rs 50,000 to Rs 1 lakh. Further, the deduction for contribution made by the employer under the corporate model could be increased up to 14 per cent of defined salary for private sector employees similar to that of government employees.

Revisiting the taxation structure for LTCG from equities

Another topic that is garnering a lot of attention is the demand for rollback of tax on long term capital gains (LTCG) arising from sale of listed securities since the present system is depriving the inflation factor on one end and adding to the tax cost at the other.

Currently, the gains in excess of Rs 1 lakh are taxable at a flat rate 10 per cent with the benefit of indexation not being available. This has hit the investor sentiment and affected the long-term equity culture. It is therefore, hoped that the pre-2018 tax regime will be restored exempting the entire LTCG. If not a complete rollback, the existing tax rate could be reduced to 5 per cent and the threshold be hiked to at least Rs 3 lakh to promote investment in the equity market.

Extension in tax relief on interest income to all taxpayers

Fixed deposits and small savings schemes are the staple investments of retail investors in India. The Finance Act 2018 inserted a new section, Section 80TTB, to allow a deduction up to Rs 50,000 in respect of interest income earned on all types of deposits made by senior citizens. It is expected that interest income from fixed/term deposits is also brought within the ambit of Section 80TTA and a similar deduction of Rs 50,000 is provided for all taxpayers.

Extension in Leave Travel Allowance (LTA) to foreign travel

With travel extending beyond territorial boundaries and becoming affordable for the common man, considering foreign travel as eligible for LTA exemption will not only provide a tax benefit but also encourage long distance travel thus giving the much needed thrust to different industries. Further, the existing restriction of claiming the benefit twice in a block of four years could also be done away with.

The list of expectations that the common man has from the budget is always long and manifold. However, one must also bear in mind that any tax benefit is a cost to the exchequer. This calls for a delicate balancing act - tax benefit that would put more money to spend with the common man and managing the additional cost. It would be interesting to see what the upcoming Budget has in store and how the equilibrium is maintained.

(Sudhakar Sethuraman is Partner with Deloitte India; Rohit Rastogi is Manager with Deloitte Haskins and Sells LLP)

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