The salaried class has had high expectations from the annual Budget for the past several years. But somehow the people never got what they wished for. In fact, those falling in the income group of 50 lakhs to 1 crore were adversely impacted last year with the levy of a 10% surcharge. This year, expectations are again building up and there is greater hope on account of several reasons. The first one is that this may be the last full-fledged Budget of this government and populist proposals may hence find a place in the Budget. Secondly, several reforms have recently been undertaken, such as GST and incentives for digitised transactions, which will increase activity in the formal economy and likely push up tax collections in the long run. Further, demonetisation received great support from the public at large. Considering these factors, this may be an opportune time for the government to elevate the public mood by granting them tax relief.
Some of the popular expectations of the salaried class include raising the basic income tax exemption limit to Rs 3,00,000; reintroducing the standard deduction (which was abolished in 2005–06); increasing the tax-free medical reimbursement by employers (the present limit of Rs 15,000 was last increased in 1998–99); rationalising the LTA exemption on a yearly basis rather than twice in a block of four years at present; extending the LTA benefit, which is presently restricted to travel within India, to international journeys; increasing the limit for 80C deduction from Rs1,50,000 to 2,50,000 to encourage people to save more for the future; introducing a tax-free crèche allowance or reimbursement by employers for child day care facilities; raising the tax exemption limit on lump sum withdrawal from NPS from the current 40% to 60%; enhancing the gratuity exemption limit to 20 lakh RS; doing away with the taxation of notional rent where the second house is not let out and/or where the self-occupied house is rented out for a part of the year; and bringing in the one point taxation regime for stock options which used to exist until 2004–05.
Senior citizens are the worst hit category of taxpayers due to declining interest rates and their inability to invest in riskier market instruments to increase their return on investments. Their expectation includes raising the basic exemption limit to Rs 3,50,000 expanding the scope of section 80TTA to cover interest from fixed deposits or other fixed return saving instruments and enhancing the deduction from Rs 10,000 to Rs1,00,000 and providing additional deduction of Rs 50,000 for routine medical expenses such as consultation fees, tests and physiotherapy.
Increased adoption of technology by the tax authorities does call for extending measures to simplify and improve ease of interaction with taxpayers. For instance, the authorities should look at faceless scrutiny or even exemption from filing returns in cases where taxpayers have simple returns (as in 2011–12, where an individual with a salary income up to Rs 5,00,000 was not required to file returns).
With the tax authorities having access to a plethora of financial information, it would be useful if they demand fewer and simpler details from taxpayers to boost the compliance level. While the above wishlist is not comprehensive, even meeting these expectations is not going to be an easy task. The government has been indicating that Budget 2018 will be a growth budget rather than a populist one. Moreover, crude prices are on the rise and the government has the daunting task of keeping the fiscal deficit under control. To increase employment opportunities and push up exports, industry is also expecting support and relief, particularly in this new and challenging environment. For the past few months, the tax authorities have been seriously chasing those who have evaded taxes in the past. Whether this is for investments abroad or within India, several people have been served notices by the tax authorities to verify large financial and/or cash transactions. These measures should help in expanding the tax base and, along with the increase in economic activity, should help in improving tax collections. This may indeed represent a best business case for lowering taxes. However, until the government gains confidence, a balanced approach seems to be the most probable one towards the Budget. Nevertheless, if not the higher income group, the lower income group is likely to see some of the above expectations being met in the Budget. In fact, the former group should not be surprised if its burden of taxes is increased little bit, be it through the levy of the capital gains tax on Indian listed securities or the enforcement of inheritance tax. 1 February is just around the corner, so let’s wait and watch what happens!
(The writer is Partner and Leader, Personal Tax, PwC India)