Amarpal Chadha, Senior Tax professional, Ernst & Young
The Finance Minister is already in pre-budget consultations. So, what can one expect and hope for this year, particularly with regard to the Direct Taxes Code
(DTC) to be implemented from 1 April 2012? The main challenges would be to adopt measures to reduce fiscal deficit, given the high economic growth, and to ensure that the 'aam aadmi' is not deprived of cash flow, which is currently inadequate to cope with inflation, specifically the high food prices.
With the DTC to be implemented in due course, there is scope for bringing existing provisions at par with the ones proposed to help the transition to the latter. There are also changes that could go a long way in providing a respite from inflationary pressures.
The uniform basic tax exemption
limit under the DTC is Rs 2 lakh as opposed to the existing Rs 1.6 lakh for men. An immediate realignment in slabs will help the middle and lower income groups combat inflation and high prices.
Another significant change that would help is the removal of the education cess of 3 per cent, at least for lower and middle income groups. Currently, medical reimbursements up to Rs 15,000 are exempt from tax, however, under the DTC, this limit has been enhanced to Rs 50,000. Revisiting existing provisions could ensure a smoother transition to the DTC.
On the flip side, the DTC does not provide an exemption for leave travel concession and one would have to wait and watch if the exemption under the current income-tax laws is also withdrawn. Another area of concern has been the deduction for interest on housing loan, currently capped at Rs 1.5 lakh. While housing loan interest rates have risen, the deduction on interest remains the same every year. Given that this cap has been retained under the DTC, one can only hope for a relaxation, though it seems unlikely.
The limit of tax exemption for savings under Section 80C, including investments such as LIC policies, PPF and repayment of housing loan, is currently set at Rs 1 lakh. Given the limited avenues for tax savings currently, especially for salaried individuals, it will help if the limit can be increased.
Amendments to the wealth tax provisions in line with DTC proposals, specifically an increase of the exemption limit from Rs 30 lakhs to Rs 1 crore will also be a welcome move.
With inflationary pressures tainting high economic growth, the Finance Ministry has the mammoth task of presenting an ideal budget. Given the challenges, it is likely that the personal tax regime will continue with minor changes till the implementation of the DTC.AMARPAL CHADHASenior Tax Professional, Ernst & Young