The Union Budget for 2017 is expected to be unique in many ways. For the first time, the budget is planned to be presented in the Parliament on 1 February 2017 as compared to the regular practice of presenting it on the last day of February. Defying the age old tradition, the initiative of presenting the Union Budget in the parliament along with the Railway Budget is also a significant change this year. Further, the big step of demonetisation by the Government has set the bar of expectations very high viz-a-viz the tax reforms in the 2017 Union Budget. Also, the expectation of the citizens is that the success of Income Disclosure Scheme will urge the Government to take measures in order to encourage more people to come forward to file their tax returns.
FULL COVERAGE: UNION BUDGET 2017-18
The top expectation from the Budget is a move to a lower tax regime either by raising the basic tax exemption limit by at least Rs 50 thousand which has remained unchanged since Finance Act 2014 (currently at Rs 2.5 lakhs for non-senior citizens, Rs 3 lakhs for senior citizens and Rs 5 lakhs for super senior citizens) or by a reduction in the personal income tax rates. Further, there is no deduction provided to the salaried class for the expenses incurred by them during the course of employment. It would be good to have the standard deduction re-introduced which was scrapped long back.
FULL COVERAGE: RAILWAY BUDGET 2017-18
The surge in the salaried class and growth of new cities other than traditional metros (eg Bangalore, Pune, Hyderabad, Noida) that offer attractive job opportunities calls for a need to revisit the exemption limits of House Rent Allowance (currently 50% of salary for metro cities and 40% for others). An increase in the deduction for rent paid is also expected in line with the increase in the cost of living. Further, the exemption limits for essential allowances such as Children Education Allowance (currently Rs 100 per month per child) and Hostel Allowance (Rs 300 per month per child) need a reality check.
Currently, the deduction for interest payment on housing loan taken for self-occupied property is capped at Rs 2 lakh, subject to a condition that the property is acquired/constructed within 3 years. To keep pace with inflation and rising property prices, enhancement of tax benefit on housing loan with relaxation of related conditions would be a welcome move.
Further, the limit for tax deduction on prescribed investments/instruments has been stagnant at
Rs 1.5 lakhs for years though the investment avenues have considerably increased. An increase in the limit would boost the inflow of idle money into the economy.
While the Government has been striving continuously to improve the working experience of foreign nationals in India, there is a lot of expectation to introduce international practices like enhanced tax treaty benefits. An amendment to the provisions relating to tax deduction at source permitting the tax payer to claim eligible foreign tax credits at the time of tax deduction at source would ease the cash flow struggle of the tax payers who otherwise suffer double taxation and wait for tax refunds. Also, the reporting of foreign assets in the tax return by tax residents could be simplified.
With the emphasis of the Government on cashless economy, we can also expect the Government to come up with novel tax incentive programs for encouraging e-payments by the consumers. Further, similar to the Government's remarkable efforts to reform the indirect tax structure which is evident with the proposed Goods and Service Tax, one can expect major tax reforms from a direct tax perspective as well. While there is a lot of buzz around the 2017 Union Budget, we will have to wait and watch the turn of upcoming events hoping that the Budget brings cheer to the honest taxpayers.
The author is a Tax Partner, People Advisory Services, EY India
(Views expressed are personal)