As the budget season is nearing, the hopes of individual taxpayers are growing higher. They are expecting tax reforms so that they get room to spend more money and pay less tax.
Any changes made to the tax slabs directly affects the country’s economy as well as the revenue collection of the income tax department at the end of the year. However, the probability of this wish to come true must be calculated from the perspective of the income tax department.
Highlights of the Interim Budget 2019
In the Interim Budget 2019, Finance Minister Piyush Goyal has stated that the tax reforms undertaken by the government in the past years have shown significant progress in achieving moderate taxation in a high compliance regime.
The Interim Budget stated full tax rebate for individuals with a taxable annual income of up to Rs.5 lakh. Therefore, people with gross income up to Rs.6.5 lakh can skip tax payments if they plan investments and make use of the tax deductions available such as specified savings, insurance, and provident funds.
Additional deductions of up to Rs.2 lakh can be availed on a home loan, medical insurance, and medical expenditure of senior citizens. Also, salaried taxpayers get a raise in the standard deduction from Rs.40,000 to Rs.50,000.
What the memorandum from ASSOCHAM says
Associated Chambers of Commerce and Industry of India (ASSOCHAM) has suggested in its pre-budget memorandum that the basic exemption limit for individual taxpayers must be increased from Rs.2.5 lakh p.a. to Rs.5 lakh p.a. The suggestion was made after carefully considering the inflation over the years. The memorandum was submitted to the office of the finance ministry.
It also highlighted that the necessary parity must be brought-in among salaried and non-salaried taxpayers. This can be done by reinstating the standard deduction it said. Currently, there is a huge difference between salaried taxpayers and the ones who own businesses. The former taxpayer group has been paying a higher tax comparatively, the memorandum mentioned.
ASSOCHAM also suggested that the components such as medical expenses and leave travel expenses must get tax relief. Currently, tax exemption on leave travel expenses is limited to travel costs and does not cover accommodation and meal expenses. This leaves more disposable income in the hands of salaried taxpayers.
In contrast, there are speculations that the finance minister may retain the essence of the Interim Budget 2019, presented on February 1, 2019.
What do tax experts say?
Sweta Dugar, a Chartered Accountant, shared her opinion on the topic at hand, “The tax slabs could be tweaked to rationalise the extreme hike from 5% slab to the 20% slab. We are moving towards a gender-neutral society where women equally shoulder financial responsibilities. The budget might seek to empower women entrepreneurs while treating them equally with men on the taxation front. Though salaried individuals can enjoy the benefit of rebate for income up to Rs.5 lakh, the steep jump to the 20% tax rate is a worry.”
Kusum Soni, a Chartered Accountant from Bikaner, appreciated the move of raising the standard deduction and the rebate offered under Section 87A. However, she said, “Currently, the claim one can make under house rent allowance is limited. It is not practical when seen in the light of the actual rent we pay in a metropolitan city.” When asked about her opinion on additional tax benefits for women, she clarified, “A separate income tax slab was prepared for women a few years back to empower women. But I don’t think it is necessary anymore. I think Nirmala Sitharaman will treat women equal to men and not provide separate benefits as such.”
Another tax expert, Akshatha stated, “The 5% tax rate is the right fit for individuals with an annual income of up to Rs.5 lakh. This serves right for the middle-class taxpayers as it gives space for more disposable income for the daily expenses. With the experience Nirmala Sitharaman has gained from serving as a defence minister, she will plan the budget well enough. The budget will be middle class-friendly.”
Will there be sweeping changes in the slab?
Divya Baweja, in an interview with LiveMint, said that a sweeping change to income tax slabs cannot be expected. However, tax relief for the middle-class is a possibility. Also, she said that the budget might formalise the tax exemption from 40% to 60% for the National Pension Scheme (NPS) withdrawal at the time of exit.
Expectations on extending basic tax exemptions
A contributor of Economic Times, Shalini Jain, expressed that the standard deduction of Rs.40,000 was reintroduced for salaried individuals, but the tax exemption on travel expenses and medical reimbursement were cancelled. She says that retaining such exemptions could add extra benefits in terms of tax savings. She suggests that the basic tax exemption limit must be raised to Rs.3 lakh p.a. at least.
In an interview with the Economic Times, Rajeev Talwar, the President of PHD Chamber of Commerce and Industry has stated that the income tax exemption limit for individuals to Rs.3.5 lakh p.a. Talwar added, “The maximum marginal slab must be raised to Rs.15 lakh from the current Rs.10 lakh.”
Salaried taxpayers have been looking forward to reduced tax rates and better disposable income at hand. Though taxpayers have their own set of expectations from the upcoming budget, it seems essential to recall Arun Jaitley’s statement made during the Budget 2018, “The government provided enough tax relief to the salaried class in the last three years. I do not propose any further changes in the income tax front.”