Economists and financial experts may judge the Union Budget on a complex set of parameters, for middle-class taxpayers, it boils down to a single parameter: relief in taxation i.e. what part of their hard-earned money will be at their disposal in terms of tax reliefs offered by the budget. Middle class wants finance minister Nirmala Sitharaman to pay heed to following expectations in Budget 2019:
Taking clue from the precedence
Former Finance Minister Arun Jaitley brought much needed cheer to taxpayers in the Budget 2014 by giving significant tax reliefs. In a way, it was a legacy budget for FM Jaitley who offered the highest tax relief in the very first budget by raising basic exemption limit from Rs 2 lakh to Rs 2.5 lakh and section 80C exemption limit from Rs 1.5 lakh to Rs 2 lakh. Now, the Budget 2019, the maiden budget of newly appointed FM Sitharaman, will be keenly watched by common taxpayers who would like her to go much beyond 2014 when it comes to offering relief to honest taxpayers.
What the status of economy demands
The economy is facing the biggest slowdown seen in last five years with the GDP growth in the March quarter of FY19 coming down to 5.8 per cent. The slump in GDP has affected the consumption level. Without a good growth in consumption, creating ample jobs for the new workforce joining the economy each year will be a huge challenge. So, not only taxpayers but many economists will also love to see some steps in the budget that leaves more disposable income in the hands of common taxpayers. Higher disposable income will boost the consumption again.
Will there be a change in basic exemption limit?
In the Interim Budget 2019, the government had announced that no tax will be levied if your taxable income is Rs 5 lakh or below. However, there was no change in the basic exemption limit, which remained at Rs 2.5 lakh for individuals with age below 60 years. It was done by giving a rebate equal to tax liability if your income is below Rs 5 lakh. So, the benefit will be available only if your income is up to Rs 5 lakh and the moment your income goes beyond Rs 5 lakh, you will not only have to pay income tax on income above Rs 5 lakh but also on the income above Rs 2.5 lakh and upto Rs 5 lakh.
The left-out middle class taxpayers now expect the finance minister to raise the general basic exemption limit so that the benefit could reach to all taxpayers. How likely will it be given the fact that the budget gave out such a big relief to taxpayers in the lowest income tax slab just a few months ago? "This is certainly possible given the fact that the basic exemption limit has not been increased for the past five years (last revised for FY 2014-15). However, in such a case, the rebate under Section 87A of Rs 12,500 may be reduced to Rs 10,000 in case of resident individuals whose taxable income does not exceed Rs 5 lakh," says Suresh Surana, Founder of RSM Astute.
Can the section 80C limit be raised?
Section 80C is a good avenue to save tax on many expenses and investments. Taxpayers would like to see the Section 80C limit increased to Rs 2 lakh at least. "This appears difficult given the increase in rebate under Section 87A for FY 2019-20 from Rs 2,500 earlier to Rs 12,500 in case of resident individuals whose taxable income does not exceed Rs 5 lakh," says Surana. Beside section 80C rebate of Rs 1.5 lakh, there is additional Rs 50,000 rebate for investing in National Pension Scheme (NPS). What Surana suggests is that both these rebates can be clubbed to raise the section 80C limit to Rs 2 lakh.
Rationalisation of tax slabs
With various budget proposals over the years, we now have a situation where 5 per cent tax is levied on income between Rs 2.5 lakh and Rs 5 lakh. However, the moment the income crosses Rs 5 lakh, there is an abrupt rise in tax rate at 20 per cent. Should we expect the introduction of 10 per cent tax rate after the 5 per cent slab? "Yes absolutely. We have all hitherto been accustomed to tax slabs that are progressively increasing in nature. Eliminating the 10 per cent tax slab will cause confusion in the minds of new taxpayers, and those whose income has increased last year and now will have some tax to be paid in the second bracket. The current tax structure is unfair for such taxpayers who are gradually moving into higher tax brackets," says Sousthav Chakrabarty, Co-founder & CEO, Capital Quotient.
Will home buyers get more relief?
In the interim budget presented earlier this year, people were allowed to have two houses as self-occupied property but the exemption on home loan interest was not raised. "It is strongly recommended that the government should consider increasing the limit to Rs 250,000 for one self-occupied house property and Rs 300,000 for two self-occupied houses," says Naveen Wadhwa, DGM, Taxmann. However, others disagree as it may result in promoting undesirable practice of investing in real estate more than what is required. "I am not in favour of this because a home purchase is the single largest expense that an individual makes. Having a tax benefit on the second home will push further investments into real estate, which is illiquid, not very supportive to meeting financial goals, and will promote a lot of short-term investment-oriented buying rather than consumption-based buying," says Chakrabarty.
More LTA exemptions
One aspect which most of salaried taxpayers want is to have LTA tax exemption raised from twice in the block of four years to every year. Will this happen in this budget? "We don't expect the government to allow the benefit of LTA exemption for every year in contrast to current practice. Although the LTA exemption helps in promoting the Indian Tourism but the government may not want to lose tax revenues by allowing the exemption every year," says Wadhwa of Taxmann.
"Currently, LTA exemption is allowed only for travel in India. The government should extend the benefit of LTA to foreign visits also. Travelling to some overseas destinations is cheaper than visiting tourist destinations in India. Therefore, it is recommended that the exemption should be allowed for both Indian and foreign destinations," suggests Wadhwa.
More relief to senior citizens
Most of senior citizens live with limited means, which was accumulated during working age. They remain vulnerable to any rise in cost of living and cost of healthcare. Taking inflation in healthcare into account, senior citizens should get higher tax benefits. The most common tax benefit that most senior citizens expect is in healthcare-related costs. If the budget provides some relief in this aspect, it will greatly benefit senior citizens. Besides this, many senior citizens depend on interest earned from fixed deposit for their regular source of income, so raising the TDS exemption limit greatly helps them. Will there be any further increase in the coming budget? "Any further increase in the threshold limit is unlikely as the government has substantially increased the threshold limit of Section 194A in the last two budgets.
"The main issue that senior citizens faced was despite their tax liability being nil, TDS was deducted due to lower TDS exemption limit. As per the last budget, no tax payment is needed upto Rs 5 lakh income now. So, should the TDS deduction limit for senior citizens be raised much higher than Rs 50,000 as of now? "If the interest income is only source of earning for senior citizens and that is below the maximum exemption limit, they can submit Form 15H with banks declaring that they don't have taxable income. In such a case, there will not be any tax deduction," Wadhwa suggests.