Focus To Be To Align Small Household Welfare With Government Schemes

This budget session is the last parliament session of the NDA government before general election due by May. Generally, in an election year, the ruling government opts for a vote-on-account or interim budget instead of a full budget. In previous four interim budgets, the outgoing government didn't announce any tax incentives for the taxpayers. If this tradition continues, we may not see any big announcements this year as well.

The government in its maiden budget in 2014 had incentivised the taxpayers by announcing various tax sops. The basic exemption limit was increased from Rs 2 lakh to Rs 2.5 lakh, the Section 80C limit was increased from Rs 1 lakh to Rs 1.5 lakh. These deductions were not tinkered with in all subsequent budgets, thus, leaving the taxpayers upset.

The major focus of this interim budget would be to align the welfare of small households with government schemes. Considering the various schemes introduced by the government in last two years, we have listed down our expectations from the interim budget.

A raise in the basic exemption limit

The basic exemption limit, which was revised last in 2014 by the government, in its maiden budget, should be increased from current Rs 2,50,000 to Rs. 5,00,000. Though the government has reduced the tax liability of small taxpayers by reducing the tax rate and revising the Section 87A rebate but basic exemption limit has been remaining unchanged since 2014.

This segment of taxpayers hardly pays a few thousands to the exchequer but the administrative cost of collecting tax, processing their return and to refund the excess tax is enormous vis-a-vis the revenue earned. Thus, considering the cost-benefit analysis and to keep small taxpayers out of tax bracket, it should come first on the list of proposals.

An increase in threshold limit of Section 80C

Section 80C is probably one of the most talked about provisions of the Income Tax Act for the purpose of tax saving. Through this provision, the government has inculcated the habit of saving in taxpayers which also helps in channelising the money for infrastructure development. A deduction of up to Rs. 1,50,000 is allowed under this Section. The threshold limit was revised by the government in 2014. Considering the growth rate estimated by the government, the threshold limit for deduction under Section 80C should be revised to Rs 2,00,000.

A deduction for medical expenses

Section 80D provides deduction for medical insurance premium paid by a taxpayer to cover any future contingencies. There is large segment of taxpayers who don't have or can't afford to buy the medical insurance policies. Similarly, there are various medical expenses which are not covered by the insurance companies. The Income Tax Act allows deduction for the medical expenditure, in these cases, only to senior citizens and not to other taxpayers. Up to last year, medical reimbursements by the employer up to 15,000 were eligible for tax deduction under the head salary. Even this deduction was withdrawn by the Finance Act 2018 on pretext of standard deduction.

The cost of medical care is massive and the government should consider introducing the deductions for a taxpayer below 60 years of age to cover the medical expenses incurred by him or her.

Higher deduction of saving interest

Interest received from banks/post offices on savings bank deposit is taxable in the hands of account holder. However, a deduction is allowed with respect to such income to the extent of Rs. 10,000 under Section 80TTA. The Finance Act 2018 has increased this limit to Rs. 50,000 for senior citizens while leaving the limit for other taxpayers unchanged. It is recommended that this deduction of Rs. 10,000 should be at par with the deduction available to senior citizens (i.e. Rs. 50,000).

(Naveen Wadhwa is DGM at Taxmann.com)

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