Budget 2023: Here's how the Finance Ministry can solve taxpayers' burden

India’s tax collections are on an uphill journey with net direct tax collection showing a growth rate of over 48 per cent. This increase in tax collections is attributable to the government’s efforts towards minimum government and maximum governance. The ease in administrative compliances, e-filling of income tax and other forms, expedite refund processing and measures to reduce litigations has not only given rise to a more tax-compliant environment but also ensures ease of scrutiny which makes it difficult to escape the tax net. The expectation from this Budget is not to diminish the tax collections but to alleviate the burden of all honest tax payers, in the least.   

Income from Salaries 

In most Indian families, you have one salary-earning sole member with two or three dependent members. With the increase in the cost of living, the financial burden is in the hands of sole-earning members and the government could consider giving some tax relief to the salaried class by increasing the tax slab,  providing a higher standard deduction and deduction under section 80C.   

Income from house property 

Individuals receiving rental income from house property are allowed full deduction of interest paid for the house loan. However, the interest deduction for individuals with self-occupied property is restricted to only Rs 2,50,000. This discrepancy in taxation should be bridged by providing even individuals with self-occupied property a full deduction of interest on house property. 

Income from capital gains 

As per the Report of Portfolio Managers filed with SEBI, assets worth INR 4,50,000 crore are being managed by registered Portfolio Managers. However, deductibility of fees paid to these portfolio managers has often been the subject of multiple tax litigations. Various tribunals have also issued contradicting ruling on this point. Given the quantum of funds in question and the contradictory view of the Tribunal, it would be helpful if the government issues clarifications with regard to the deductibility of fees paid to portfolio managers and reduce further litigation. 

Income from business and profession 

TDS rate of 10 per cent, applicable to professionals below an annual income of up to INR 24,00,000 is considered to be excessive, especially if the professional is declaring income under section 44ADA - the presumptive tax scheme. Given the rise in unemployment, freelancing may be a source of temporary relief to professionals and the high TDS can cause severe cash constraints in the hands of the struggling professional community. It is expected that the government will address the issue of over-deduction at source in the hands of free-lancing professionals. 

Rebate under section 87A 

Under the current provisions of law, an individual whose total income does not exceed INR 5,00,000 is entitled to 100% tax rebate. Given that a family with income of less than Rs 8,00,000 is eligible to register as Economically Weaker Section, there is an expectation to extent the relief under section 87A to the said individuals.  

The uphill journey of tax collection needs further impetus from the Ministry that will continue its acceleration and not topple progress. The overall expectation from this budget is to provide concessions to lower-income group, strengthen saving through portfolio investments and reduce litigations. The Ministry is also contemplating simplification of income tax return forms by introducing a common form that is aimed to reduce the filing time and bring ease of filing. With these measures, the Ministry can provide marginal relief to existing and new taxpayers, without curtailing its tax net and savings in the hands of the taxpayer will only act as a stimulus to the economic growth of the country.   

Views are personal. The author is Partner, Nangia Andersen India. This article was written with inputs from Neetu Brahma.