Direct taxes: Increase 80C deduction limit to Rs 2 lakh; basic tax threshold to Rs 3 lakh
Budget 2016 will be the third Budget (second full-term Budget) to come from the BJP-led government. The strong middle-class population contributes substantially to the direct tax collections. Hence, this is the time they look up to the Finance Minister to reduce their tax burden.
- Feb 9, 2016,
- Updated Feb 17, 2016 1:41 PM IST
The general expectation is that the government would increase the deduction limit under section 80C for specified investments to Rs 2 lakh and basic threshold limit for taxing an individual to Rs 3 lakh. Further to these expectations, we have outlined below some of the key areas where the finance minister can bring much needed relief to the taxpayers.
National Pension Scheme (NPS): Currently, the returns from NPS are subject to income tax under the EET (Exempt Exempt Tax) regime, that is, withdrawals made from NPS are taxed in the hands of the individual. However, this is not in parity with other pension and retirement schemes such as pension plans offered by insurance companies and provident fund, which are under the EEE regime. Therefore, to bring parity and keeping in mind that the government was contemplating to provide option to employee to be part of either NPS or provident fund, NPS must be brought under EEE regime. Interest on housing loan: Deduction limit for housing loan was increased to Rs 2 lakh in Budget 2014. Considering the property prices in metro cities, there is a need to enhance this for housing properties situated in metros. Further, the condition of completing the construction within three years needs to be reviewed as the delay caused by fault of the builders leads to dis-allowance of interest deduction for the individual.Foreign asset reporting: The government needs to bring out clear, detailed and unambiguous guidelines for reporting of assets located outside India in the tax return. This is critical to give positive signals to the foreign citizens working in India, who are required to comply with this reporting requirement. This will also help eliminate unwarranted scrutiny from the tax officers.Streamline audit process: Currently, the first level of audit process is completed in three years from end of the respective tax year. For example, for tax return filed for FY 2015/16, the audit will be initiated by September 2017 and the entire audit process will be completed by March 2019. With the increased use of technology and electronic processing of tax returns, this process needs to be more efficient and should be completed in much lesser timeframe. This will provide relief to the taxpayers by bringing in transparency and efficiency in the process.
Agricultural income: Currently, income from agriculture is not taxed directly. Considering that the government also has to provide huge subsidies to this sector, there is a need to tax the income from large farmers. Adequate filters such as income level, size of farmland, etc. can be put to ensure that small and marginal farmers are not affected.
Stamp duty and registration charges: A closer look at the provisions suggest that deduction for principal repayment of loan taken for house property and stamp duty/ registration charges can be taken only when the property is complete or possession is taken. This leads to a situation where the individual is unable to take deduction of stamp duty/ registration charges paid on under construction property. The government should do away with this condition and allow deduction in the year of payment itself.
Sundeep Agarwal is Executive Director and Hitesh Sharma is Associate Director, Personal Tax, at PwC India
The general expectation is that the government would increase the deduction limit under section 80C for specified investments to Rs 2 lakh and basic threshold limit for taxing an individual to Rs 3 lakh. Further to these expectations, we have outlined below some of the key areas where the finance minister can bring much needed relief to the taxpayers.
National Pension Scheme (NPS): Currently, the returns from NPS are subject to income tax under the EET (Exempt Exempt Tax) regime, that is, withdrawals made from NPS are taxed in the hands of the individual. However, this is not in parity with other pension and retirement schemes such as pension plans offered by insurance companies and provident fund, which are under the EEE regime. Therefore, to bring parity and keeping in mind that the government was contemplating to provide option to employee to be part of either NPS or provident fund, NPS must be brought under EEE regime. Interest on housing loan: Deduction limit for housing loan was increased to Rs 2 lakh in Budget 2014. Considering the property prices in metro cities, there is a need to enhance this for housing properties situated in metros. Further, the condition of completing the construction within three years needs to be reviewed as the delay caused by fault of the builders leads to dis-allowance of interest deduction for the individual.Foreign asset reporting: The government needs to bring out clear, detailed and unambiguous guidelines for reporting of assets located outside India in the tax return. This is critical to give positive signals to the foreign citizens working in India, who are required to comply with this reporting requirement. This will also help eliminate unwarranted scrutiny from the tax officers.Streamline audit process: Currently, the first level of audit process is completed in three years from end of the respective tax year. For example, for tax return filed for FY 2015/16, the audit will be initiated by September 2017 and the entire audit process will be completed by March 2019. With the increased use of technology and electronic processing of tax returns, this process needs to be more efficient and should be completed in much lesser timeframe. This will provide relief to the taxpayers by bringing in transparency and efficiency in the process.
Agricultural income: Currently, income from agriculture is not taxed directly. Considering that the government also has to provide huge subsidies to this sector, there is a need to tax the income from large farmers. Adequate filters such as income level, size of farmland, etc. can be put to ensure that small and marginal farmers are not affected.
Stamp duty and registration charges: A closer look at the provisions suggest that deduction for principal repayment of loan taken for house property and stamp duty/ registration charges can be taken only when the property is complete or possession is taken. This leads to a situation where the individual is unable to take deduction of stamp duty/ registration charges paid on under construction property. The government should do away with this condition and allow deduction in the year of payment itself.
Sundeep Agarwal is Executive Director and Hitesh Sharma is Associate Director, Personal Tax, at PwC India