Having gone through the demonetisation experience with a smiling face, one of the expectations which has got built up in the mind of the common man is the expectation of good tax breaks in the coming Budget 2017.
One of the most popular wish lists is doubling of the basic exemption limit and even changes in the slab rates. But knowing the facts that only 24 lakh taxpayers file return with income over 10 lakh and the government really needs money for spending on poor, it doesn’t seem so likely that this wish may come true. But the government may cheer the common man by increasing the basic exemption limit by Rs 50,000, i.e., from Rs 250,000 to Rs 300,000 and for senior citizens from Rs 300,000 t0 Rs 350,000.
The salaried class is looking for a standard deduction which used to be there until 2005-06, so that they get some deduction as their peer individual businessmen get deduction from while making earning from their businesses. Standard deduction may be introduced at lower of 30% of salary or Rs 100,000.
There are certain exemptions available under the Income Act, 1961 (Act), but their limit is so low which hardly leave any tax saving impact. For example, monthly children education allowance and monthly hostel allowance which are presently exempt up to Rs 100 and Rs 300 per child, respectively. But the actual expenses on education is so high and these exemptions which have not been revisited for the past so many years do merit an upward revision.
Further, with the trend of nuclear families and both the parents working, they have to arrange for the upkeep of their children through crèches, etc. The expenses on this account is pretty high and also merit for allowing of deduction in relation to such expenses say up to Rs 5,000 per month per child. Where employers provide the crèche facilities for the children of their staff , such a provision should not be considered as taxable perk.
Presently, Section 80C is capped to Rs 150,000 and it covers several investment options and also certain expenses. The deduction limit may be enhanced to Rs 250,000 to encourage individuals to save more for their post retirement life and that will also help government to gather more funds to meet its long term investments.
Declining interest rates are likely to impact the senior citizen the most as they have to invest in the fixed return saving schemes and cannot afford to invest their saving in risker option to increase their return. Our Prime Minister made an announcement on December 31, 2016 that such individuals will earn minimum 8% of interest on their deposit up to Rs 750,000. This indeed is helpful, yet a tax rebate may be considered up to Rs 100,000 for the interest earned by the senior citizens from their various fixed return saving instruments.
Simplification and a friendly administration is one the key asks of the taxpayers. Particularly where cash has been deposited in a large number of bank accounts which tax authorities intend to investigate, there is a merit to allow lower income group with simpler return to be exempt from tax filing so that authorities can focus on those who do not pay taxes or evade taxes. There was a circular issued in 2011-12, where the salaried class earning up to Rs 500,000 and having saving bank interest up to Rs 10,000, were exempted from tax filing where taxes due on their income has been duly deducted and deposited by the deductor. Something similar may be coined by the government to give relief to the small taxpayers.
While suspense continues for the Budget day, i.e., February 1, or not, it would be interesting to see how the government will succeed making common man smiling.