It is once again that time of the year when individual taxpayers’ expectations are at a high, confidently believing and reassuring oneself that the government will announce additional benefits/deductions for individuals, resulting in a higher disposable income. Over the past few years, the tax slab rates have remained the same with a shift in the basic exemption.
Though a study of the global tax rates indicates that India’s tax rates favour well, there is still scope for re-alignment of income-tax rates to benefit the taxpayer, as the social security system in India does not provide adequate coverage as compared to foreign countries. Hence, one has to still actively save for his/her retirement and any step towards this direction would bring joy to taxpayers.
Although in the Budget for the previous financial year, the government raised the exemption limit for conveyance allowance and health insurance, there are certain allowances for which the exemptions are too low and need to be revised keeping in mind the rate of inflation. Some of the allowances that need revision are children’s education and hostel allowance, reimbursement of medical expenditure, deduction in respect of rent paid by individuals who do not receive house rent allowance.
The concept of “block of years” for claiming leave travel assistance (LTA) exemption may be removed and salaried employees could be allowed to claim the exemption every year as against the current practice of two times in a block of four years.
Standard deduction on salary was removed few years back on the ground that there was an equivalent increase in the basic exemption limit and other eligible deductions for salaried employees. Though salaried persons incur various expenditures, most of these expenses are not allowed as deductions. Instead of re-introducing the standard deduction, enhancing the existing exemption/deduction limits or introducing new exemptions/deductions may bring relief to taxpayers, considering the increase in the cost of living.
The deduction limit for contribution by an employee to National Pension Scheme (NPS) was increased to Rs 1.5 lakh from the limit of Rs 1 lakh in last year’s Budget. Also, an additional deduction of Rs 50,000 was introduced. Given the government’s encouragement to people for savings/investments, one can expect the government to implement the model of giving tax benefit in the form of exemption/deduction at the stage of contribution, income generation as well as withdrawal of NPS. Real estate prices have shot up in the last few years. To boost investment in real estate, the government may come up with an enhanced deduction on the home loan interest payment, as the current deduction (Rs 2 lakh per annum) doesn’t match with the rising inflation.
The condition for completion of construction of house property within the specified time limit (three years) may be revisited considering the delay by builders in completing housing projects. The existing provisions restrict the eligible deduction towards housing loan to Rs 30,000, if the construction is not completed within three years (the three-year period calculated from the end of the year in which the loan is availed). Since the delay in completion of these projects causes hardship to individual buyers, the government may consider increasing the time period beyond three years, say to five years.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, introduced in the previous year’s Budget, targeted to broaden the tax base and further empowered tax authorities to impose stringent penalties in case of non/wrong disclosure of foreign assets, money and accounts.
Over the past few years governments have taken various steps to improve the taxpayer experience. However, there is a long way to go in terms of simplifying the tax compliance process. Some measures like providing timely access to applicable income-tax return forms, introducing sophisticated technology initiatives with respect to filing tax returns, assessments and the process of refund would have far-reaching effect on the compliance process.
Due to globalisation and the international business environment, it is expected that the government will look into certain international tax practices (like joint tax filings, deductions based on dependents, split residency based on tax treaties, tax equalisation concept, etc.).
It is also anticipated that the government may introduce the concept of applying for tax return filing extension, which is common in many countries. While these are expectations from the taxpayers’ side, the government also needs to balance the fiscal deficit and simplify the tax provisions.
