Vineet Agarwal
KPMG India
1. Increase the savings limit for investmentsCurrently, an individual gets the deduction u/s 80C of the Income‐tax Act, 1961 (“the Act”) which is limited to Rs. 100,000 per annum for different investments/expenses incurred during a year (like contribution towards employee provident fund, Public Provident Fund, payment of life insurance premium, tuition fees, etc.) This limit for investments savings is quite low in today’s environment keeping In view of increasing inflation / prices and absence of comprehensive social security scheme in India. Therefore, the individual taxpayers expect this limit to be raised to say Rs. 300,000 per annum.
2. Separate deduction for education expenses
There are two deductions available in the Act which relate to Education expenses. First is a direct deduction on account of fees paid for the education of dependent children tuition fees in any university, college, school or any other educational institution which is covered within general savings investment limit of Rs. 100,000. Second is a deduction on account of interest on loans taken for higher education of family members. Given the substantial and consistent increase in the cost of education over the past few years and long‐term development of society, a separate deduction (say Rs. 75,000) for education expenses incurred for children / other family members is anticipated to be allowed.
3. Revival of standard deduction
No deduction is allowed to salaried individuals who pay tax on their gross salary. However, Individual engaged in business / profession or owns a House property gets a deduction. In many countries like Malaysia, Indonesia, Germany, UK, France, Japan, Thailand, etc. with regard to expenses connected with salary income, allowance in the form of standard deduction is available to salaried employees. In today’s times, to upgrade their skills / specialization employees incur expenses on journals, magazines, trainings,
etc. All these expenses are in the nature of official expenses in the true sense to earn salary income and are not merely personal expenses. Given the rising prices and to bring in the necessary parity amongst individuals earning income from different sources, the salaried individuals may expect from the
government to reintroduce the standard deduction that was done away with in 2006.
4. Transportation Allowance
In terms of Section 10(14) of the Act read with Rule 2BB of the Income Tax Rules, 1962 (the Rules), the transport allowance granted by the employer to the employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty is currently exempt up to INR 800 per month. This exemption limit was set in 1998 and seems quite nominal. Considering the ever rising fuel costs and resultant conveyance costs, the exemption limit of INR 800 per month is expected to be considerably raised upwards, say to minimum of INR 2,000 per month to bring
it in line with the rising inflation and conveyance costs.
5. Education Allowance
In terms of Section 10(14) of the Act read with Rule 2BB of the Rules, the education allowance granted by the employer to the employee to meet the cost of education expenditure of upto two children is currently exempt up to INR 100 per month per child. This exemption limit was fixed in 2000 with
retrospective effect from 1 August 1997 and seems quite nominal considering the ever rising cost of education. The exemption limit of INR 100 per month is expected to be considerably raised upwards, say to minimum of INR 2,500 per month to bring it in line with the rising inflation and cost of education.
6. Reimbursement of Medical Expenditure
As per Section 17(2) of the Act, any sum reimbursed by the employer in respect of any expenditure incurred by the employee on the medical treatment of self/ family is currently non taxable upto INR 15,000 per annum. This limit was last revised almost 14 years ago and in light of the soaring medical and hospitalization costs especially for private hospitals, needs to be revisited.
The salaried Individuals expect from the government that the current limit of INR 15,000 per annum should be increased to at least INR 50,000 per annum. To some extent, this could help to bring the tax benefit up to speed with the rising medical costs.
7. Deduction in respect of interest on time deposits
As per the Finance Act 2012, interest from savings bank account with banks/ post office is deductible from taxable income to the extent of INR 10,000 per annum. To encourage long term savings by middle class, this limit is expected to be extended to income by way of interest on time deposits (made for a fixed period of not less than three years) and the limit should be
set at least INR 20,000.
8. Deduction for interest on housing loan
As per section 24(b) of the Act, a deduction upto a maximum limit of INR 150,000 is currently available from taxable income towards interest on loan taken for acquisition/construction of self‐occupied house property provided such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed and the capital is borrowed on or after 1 April 1999. With the property prices and interest rates rising steeply with each passing year, there is a need to revise this age‐old deduction limit. It is expected that this deduction may be increased to at least INR 300,000 per annum and harmonized with the rising interest rates.
