Prime Minister Narendra Modi-led National Democratic Alliance (NDA) is all set to come to power for the second consecutive term. The NDA government, in its first Union Budget, had increased the income tax exemption limit, interest on housing loan and Section 80C deductions. In the next consecutive budgets, the government did not give much benefit to individual taxpayers except changing the rebate under Section 87A.
In fact, in the interim budget earlier this year, Finance Minister Arun Jaitley provided relief to small and salaried taxpayers. But, a substantial number of them could not get any relief as the tax burden was reduced only for taxpayers earning less than Rs 5 lakh during the financial year 2019-20.
The new government will present the full budget in July. We recommend and expect the Finance Minister to make the following announcements:
Simpler direct tax laws
The government has constituted a task force in order to review the Income-Tax Act, 1961 and draft a new direct tax law in consonance with the economic needs of the country. The deadline for the task force to submit the report has been extended several times. If this date is not extended again, the task force shall submit its report on or before May 31 and might recommend rationalisation of a few income-tax provisions related to individual taxpayers to increase transparency and accountability. If this report is submitted on time, we may expect that some of the recommendations of the task force will be implemented through amendments in the existing Income-Tax Act.
Stable GST law required
Since the implementation of the Goods and Services Tax (GST), the applications filed for Advance Ruling under the law have been growing. Numerous amendments, circulars and notifications have been issued until now by the Central Board of Indirect Taxes and Customs (CBIC) to bring clarity in the law. Thus, it is high time the government brings in a stable GST law in order to boost its idea of ease of doing business in India.
More relief for individual taxpayers
The Finance Act, 2018 has increased tax relief under Section 87A from Rs 2,500 to Rs 12,500, which is available to those resident individuals whose total income does not exceed Rs 5 lakh during the financial year 2019-20.
However, even if the taxable income exceeds the limit of Rs 5 lakh marginally, the tax liability will increase considerably. This is because the slab rates have not been tinkered with and the relief has been provided by making an amendment to Section 87A. The Income-Tax Act does have a provision to provide minimal relief to those whose income marginally crosses Rs 50 lakh or Rs 1 crore. It is recommended that the same should be allowed for individual taxpayers earning slightly more than Rs 5 lakh.
Further, the basic exemption limit should be increased at least to Rs 3 lakh for an individual taxpayer and Rs 3.5 lakh for resident senior citizens and Rs 6 lakh for super senior citizens.
Higher deduction for housing loan
Considering the socio-economic need of middle-class families to maintain houses at two locations because of their jobs, children's education and to look after their parents, the interim budget has granted major relief to individual taxpayers by allowing them to declare two houses as self-occupied for the purpose of calculating income from house property.
However, the deduction in terms of interest on borrowed capital with respect to both the houses remains unchanged at Rs 2,00,000. It is recommended that the government should promote the housing sector by giving a higher deduction for interest on housing loan. The government should consider increasing the limit to Rs 2,50,000 for one self-occupied house and Rs 3,00,000 for two self-occupied houses.
Increase in threshold limit under section 80C
Section 80C allows deduction not only in terms of investments but also the expenses which we generally incur in our day-to-day life such as tuition fees, housing loan principal repayment etc.
The existing limit for deduction at Rs 1,50,000 leaves very little scope for taxpayers to make further investments. Thus, various investment schemes have been losing their sheen. With a pick-up in inflation, there is a need for an increase in the limit under section 80C.
(The author is DGM, Taxmann)