Every year on Budget Day, we wait expectantly for the Hon'ble Finance Minister (FM) to dole out some goodies in the form of tax sops. Here are some suggestions for him to consider making our lives a little easier:
1. Medical reimbursement: Despite the continuous rise in medical costs, the medical reimbursement limit of Rs 15,000 per year set in 1997 remains unchanged. The cost of medication is high, not just for serious illness but also for general treatment. This amount (Rs 15,000 a year) for the entire family is too low and needs to be increased to at least Rs 50,000 per year.
2. Leave travel allowance: Currently, exemption is allowed for employees on the amount they spend on their cost of travel within India. This benefit can only be availed twice in a block of four calendar years. This exemption should be granted every financial year and also be extended to include the cost of stay. Apart from encouraging salaried employees to avail of this benefit, it will also give the much needed boost to the development of the travel and tourism sectors.
3. Standard deduction in salaries: There are limited avenues available for salaried individuals to obtain relief from tax, in spite of the fact that they are the only consistent taxpayers in the country. On the other hand, any person generating an income from business is allowed to claim deduction for the expenditure incurred in earning this. Therefore, to ensure parity, a standard and fair deduction rate should be introduced on income from salary.
4. Special benefits for senior citizens: Most senior citizens depend on income from bank deposits to a large extent for their monthly sustenance. With interest rates on savings continuously dropping, senior citizens are under considerable stress. Some sops for them, such as tax exemption for interest earned from fixed deposits and increased deduction for medical expenditure (including hospitalisation costs not covered under insurance) would give them the much needed relief.
5. Set-off of losses from house property: Last year, the finance minister restricted set-off of losses from house property to Rs 2 lakh a year. This discourages people from buying a second home. The limit for set-off could be increased to give a boost to the struggling real estate sector.
6. Pre-construction interest on home loans: Currently, pre-construction interest is deductible in five equal instalments, but only after receiving possession of property. Effectively, in spite of the cash outflow, the buyer is not able to offset this at any time during the year. Furthermore, since this deduction is included in the limit of Rs 2 lakh, the buyer may not actually be able to avail of any deduction at all. Therefore, to encourage people to buy their own homes, the pre-construction interest should be allowed as a deduction during the construction stage.
7. School fees: At present, school fees are deductible under Section 80C of the Income Tax Act within the overall limit of Rs 1.5 lakh. This amount is frequently exhausted by contributions to long-term benefits including PF, PPF and life insurance premiums - and actual school fees for two children is much higher than the deduction allowed under the Act. Therefore, for salaried employees, school fees should be allowed a separate deduction.
8. Rent paid for residential accommodation: For non-salaried individuals, deduction for rent paid for residential accommodation is restricted to Rs 5,000 per month. The rent in urban areas is much higher. Accordingly, the deduction limit should be increased to at least Rs 15,000 per month.
There is no doubt that the finance minister needs to perform a tough balancing act, but in our daily struggle with the rising cost of living, implementation of our suggestions (given above) would bring some cheer and extra disposable income to average urban citizens. We hope the Hon'ble Finance Minister is listening.
(Ishita Sengupta is Partner-Personal Tax at PwC India; Paras Doshi, Manager, PwC, also contributed to this article)
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