Finance Minister Nirmala Sitharaman will present the Union budget on February 1. The common man (read the honest taxpayer) already hit by inflation expects the government as always, to provide some relief in the budget which will be the last full budget before the elections in 2024. What are the expectations of the taxpayers?
The following is the wish list of the common man:
Income Tax exemption limit
This invariably is on top of the wish list of the salaried class & other honest taxpayers who will be praying as ever that the finance minister is going to raise the exemption limit. Incidentally, the FM had introduced the new personal Income tax regime during Budget 2020 and had given individual taxpayers the option to choose any tax regime. Since the tax exemption limit under both is Rs 2,50,000 the aam aadmi hopes that this is increased to Rs 5 lakhs. While an increase in exemption limit means revenue loss to the government, the taxpayer feels that the government need not worry too much because of buoyancy in tax collections.
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Increase in standard deduction
The standard deduction which is allowed only for salaried employees was reintroduced in FY 2018-19 after being scrapped in FY 2005-06. The standard deduction was introduced in place of transport allowance and medical reimbursement which was scrapped.
With the increase in price levels, there is a case for increasing the standard deduction from the current Rs 50,000 to Rs 1 lakh. Taxpayers hope that the same benefit is extended to taxpayers opting for the new tax regime.
Reduction of interest on delayed payment of advance tax
Taxpayers having a total tax liability of Rs 10,000 or more in a financial year must pay advance tax, which is the practice of “pay as you earn “instead of paying a lumpsum tax at the end of the financial year. He has to pay a penalty of 12 per cent per annum on any default in payment of advance tax under Section 234B of the Income Tax Act. The expectation of the taxpayer is that the penal interest is too stiff and is either waived or at least reduced by half to 6 per cent.
Deduction under Section 80C
Individuals can claim a maximum deduction of Rs 1.50 lakh under section 80C by making investments in schemes like PPF, ELSS, Sukanya Samriddhi Yojana, NPS, five-year tax saver deposit etc. The ceiling of Rs 1.50 lakhs was last revised in FY 2014-15 and taking inflation into account, an upward revision is long overdue. This is a long pending demand of the common man, and he hopes that the limit is increased to at least Rs 2.50 lakhs. Many taxpayers expect a level playing field among tax savings products and wish that the tenure of tax saver deposits is reduced from 5 years to 3 years to make them more attractive.
Deduction under Section 80CCD (1B)
Individuals can claim deductions up to Rs 50,000 on the amount contributed to the National Pension Scheme (NPS) under Section 80CCD (1B).
The deduction under Section 80CCD(1B) is over and above the deduction availed under Section 80C. The expectation is that since the government does not provide any social security unlike governments in Europe and the US, it can at least provide certain incentives to individuals who are saving today for building a retirement corpus. The common man expects this to be increased to Rs 1 lakh.
Abolish Income tax or give certain privileges to taxpayers
Taxpayers point out that a huge 94 per cent of the population does not pay taxes but still enjoys benefits provided by the government like good roads, sanitation, drinking water etc. Since only 6 per cent of the population pays taxes, they argue that abolishing income tax may not result in a major revenue loss for the government, especially at a time when the government is collecting record GST every month.
While this may be too much of a demand and the government is unlikely to let go of the cash cow, it can at least provide certain benefits or preferential treatment to the taxpayers.
Other concerns and expectations
Other demands on the wish list include the rationalisation of capital gains tax across different asset classes which is too complicated.
Few want indexation benefits to be extended to bank FDs too. Many others want the tax on dividends to be abolished. Many feel that the new tax regime has too many slabs and want it to be reduced to make it attractive.
Keep your fingers crossed and pray that the budget brings cheer.
(The author is a Chartered Financial Analyst (CFA), a former banker and currently teaches at Manipal Academy of Higher Education, Bengaluru)