The common man has a lot of hope from the next government. And one should not be surprised if they actually come true, though only to some extent. While India will not remain unaffected from the global economic situation, domestically too there are challenges. The focus of the income tax department is on tightening the compliance, automation of processes and elevated use of technology, to eliminate opportunities to evade taxes and give efficiency to the government in terms of collection of taxes. And the honest taxpayers may benefit from the lowering of taxes.
Some of the expectations of taxpayers which merit considerations are:
Lower the tax burden on the middle-income group: In the interim budget, full tax rebate was extended to those having income up to Rs 500,000 (it was earlier capped to Rs 350,000) without any change in tax slab rates. This largely benefited lower income group and individuals with income up to Rs 500,000 have to pay no taxes now. The government may raise the basic exemption limit by Rs 50,000 ( from Rs 250,000 to Rs 300,000) extending the benefit to all or alternatively, 5 per cent slab may be raised from 5 lakh to 7.5 lakh thus reducing the tax burden from 20 per cent to 5 per cent for this category.
Women taxpayers: An additional tax benefit to women taxpayers, in the form of higher basic exemption or a tax rebate, may be brought back as it was prevalent until the financial year 2011-12.
Higher deduction for interest: Limit of 80TTA deduction currently available for savings and post office savings accounts may be raised from Rs 10,000 to Rs 20,000 and interest on fixed deposits too may be made eligible for deduction.
Leave Travel Allowance (LTA): LTA is presently exempt twice in a block of 4 calendar years and that too is limited to actual travel cost within India. Keeping in view the stress level and well being of the young working class, LTA exemption may be allowed every year and even international destinations may be permitted to be eligible for exemption. Additionally, other expenses such as boarding, lodging etc. may also be included in this ambit rather than restricting the exemption to travel fare.
Child care deduction: Employers are supposed to provide creche facility in the office, however, it is not a taxable benefit. In places where the employer gives an allowance to its employees to meet creche expenses, there is no exemption from tax. The government may introduce exemption of creche allowance up to a threshold of say Rs. 20,000 per annum per child (up to two children) to benefit the working parents to look after their children well.
Double taxation of contribution to approved superannuation fund: Currently, the employer's contribution to an approved superannuation fund in excess of Rs. 150,000 per annum attracts tax in the hands of the employee. Further, any early withdrawal from the superannuation fund or annuity payments received on retirement is fully taxable in the year of receipt. This results in double taxation, once in the year of contribution if it exceeds Rs. 150,000 and secondly, at the time of receipt of payment from the fund. Bringing parity and one point taxation will help remove this anomaly.
Taxability of ESOP benefit: Presently, ESOPs are taxed at two points -- (a) at the time of allotment of shares, where a notional benefit is taxed (the difference between the fair market value and price paid by the employee to acquire share) and (b) at the time of sale of shares, actual gain (the difference between the actual consideration received and fair market value of shares at the time of allotment of shares). There is a cash flow issue as at the time of allotment, the employee is paying tax although he or she may not have received any money at that time. It may happen sometimes that the actual sale of shares resulting in a loss if later on, the market value of shares comes down. In such a situation, the employee suffers a double loss, namely tax outgo at the time of allotment of shares and loss on the sale of shares. Bringing the regime of one point taxation at the time of sale of shares would help to promote the ESOP schemes and particularly support the small and medium scale enterprises in attracting talent.
Raising the limit for Section 80C: The present limit of Rs 150,000 under section 80C for various investments, may be raised to Rs 250,000, to allow taxpayers to save tax while saving for their future.
Higher deduction for interest on housing loans: Currently, deduction in respect of interest on housing loan for a self occupied house property is limited to Rs. 200,000. Even the set off of loss from a let out property is also limited to Rs. 200,000 per annum and the balance loss can be carried forward to the next 8 years for set off against future income from house property. To give a push to the housing sector and also to incentivise the tax payers to buy their own house, the deduction for housing loan interest may be raised to Rs. 300,000 and the cap of set off of loss against other income may be removed.
(The writer is Partner and Leader Personal Tax, PwC India.)