>> Restoration of Standard Deduction - In the past, standard deduction was allowed to salaried taxpayers, as deduction from salary income. Business income earners are allowed to claim expenses to earn such business income in determining their tax liability. In order to bring salary income earners at par with business income earners, the restoration of standard deduction would be a welcome change. Considering the current inflation, either a fixed amount or a percentage of salary could be set as standard deduction.
>> Conveyance allowance - The current exemption towards conveyance / transport allowance is Rs 800 per month (fixed in 1998). Considering the current cost inflation index and with rising fuel costs, this exemption limit needs to be raised at a reasonable level of at least Rs 2,000 per month.
>> Medical expense reimbursements - The reimbursement of medical expenses by employer is exempt up to Rs 15,000 per annum. Over the past many years, the cost of health care in India has substantially increased. Given that this limit was fixed in 1998, the new finance minister can consider increasing this to a reasonable limit considering the current cost of inflation and expensive medical treatment.
>> Children Education and Hostel allowances - Currently, children education and hostel allowances are exempt to the extent of Rs 100 and Rs 300 per month per child, respectively, up to a maximum of two children. This limit was fixed in 2000 with retrospective effect from 1997. As India is aiming toward 100 per cent literacy, the new government can increase these limits in consultation with the Department of Education. Considering that education is essential and the current cost of education, this limit per child can be increased to a realistic value.
>> Increase in limit of interest paid on housing loan for self-occupied property - Currently, the deduction for interest paid on housing loan taken for a self-occupied property is limited to Rs 1,50,000 per annum since 2001. However, the real estate cost has increased multifold and consequentially the quantum of housing loan. Considering the increase in the cost of borrowing and current inflation, the eligible amount of deduction may be revisited for all taxpayers. This would result in additional tax savings for taxpayers.
>> Increase in threshold limit under Section 80C - At present, the deduction in respect of a variety of investments under Section 80C is restricted to Rs 1,00,000. The investments made in various avenues under this section helps the government to raise funds and taxpayers to save tax. However, there are various types of investments which qualify for deduction under this provision with an upper cap of Rs 1,00,000. Accordingly, in order to encourage enhanced long-term savings and investment, an increase in this limit to a reasonable level would be a welcome change.
>> Refund and Tax credit - The taxpayers hope that the new finance minister could improve the current tax administration mechanism. Many taxpayers continue to face challenges in getting credit for taxes deducted at source and their tax refunds in time. While the Central Board of Direct Taxes has issued press reports on reduction of time limits in issuance of refunds, and has also adopted technology to improve this process, more can certainly be done on this front. Besides amendment in tax law for this purpose, the systems and procedures too need a thorough revamp to implement expeditious refunds.
Last but not the least, the new finance minister may consider increasing the basic exemption limit and change in tax slab in line with the tax rate proposed by the Parliamentary Standing Committee on Finance in its report on Direct Taxes Code 2010 (DTC Bill).
If the aforesaid expectations are considered favourably it would certainly enhance the morale and, more importantly, the cash inflow of a common man.
(The author is Partner, KPMG in India. The views and opinions herein are those of the author and do not necessarily represent the views and opinions of KPMG in India. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.)