There is the expectation that the Finance minister may relax the personal income tax slab rates.
Aarti Raote and Reena Poddar
The Finance Minister slashed the corporate tax rate a couple of months ago and this has increased the expectation of the aam aadmi from the 2020 Budget who is looking forward to changes which will increase his disposable income.
Revision in tax slabs:
There is the expectation that the Finance minister may relax the personal income tax slab rates. Currently, there is no tax for individuals with income up to Rs 5 lakh (after considering rebate). However, the basic exemption limit has not increased from Rs 2.5 lakh to Rs 5 lakh. As per statistics released by the tax department in October 2019, over 97 lakh individual taxpayers returned income between Rs 5 lakh and Rs 10 lakh and the revenue collected from these taxpayers was more than Rs. 45,000 crore.
Given the current inflation and economic slowdown, the Finance Minister could consider to increase the disposable income of the common man by raising the tax slabs in a manner that would not result in substantial reduction in the direct tax revenue of the government and yet still manage taxpayers’ expectations.
Relaxation of taxation provisions in relation to house property:
Currently the law limits the deduction of housing loan interest (including pre-construction interest, which can be claimed in five equal instalments) for a self-occupied property up to Rs 2 lakh.
Further, section 80EEA, introduced in FY 2019-20 provides additional deduction of Rs 1.5 lakh for interest payment on purchasing a house with the stamp duty value not exceeding Rs. 45 lakh. This deduction is allowed over and above the Rs. 2 lakh deduction for home loan interest.
Individuals buying house for the first time in Tier II cities may avail some portion of this additional deduction of housing loan interest. However, considering the real estate price in metro cities, the restriction on the value of the house should be removed and higher deduction should be extended to all taxpayers for their first house purchases irrespective of the cost and size of the house. This will give the much required boost to real estate sector without compromising on the aspirations of the buyers.
From Finance Act, 2017, the total current year loss from house property that can be set-off against current year’s income (except capital gains and speculation income) is only Rs 2 lakh. The remaining loss, if any, can be carried forward to eight tax years. Further, the carry-forward loss is allowed to be set off only from ‘income from house property’. This restricts the set-off. The carry-forward loss which remains unutilised, lapses. The interest component of housing loan repayment is substantial in the initial years of housing loan repayment. Therefore, this change from Financial Year (FY) 2017-18 has resulted in substantial increase in tax outflow for middle class taxpayers owning only their self-occupied houses.
Increase in deductions:
The current deduction limit of Rs 1.5 lakh under section 80C for certain investments/payment is available to individuals. This limit was last enhanced in FY 2014-15 from Rs 1 lakh and hence its time that the FM enhanced this deduction to at least Rs 250,000.
The deduction for investment on infrastructure bonds was earlier available under section 80CCF, to the extent of Rs. 20,000 for Financial Year (FY) 2010-11 and FY 2011-12. However, the same was subsequently withdrawn. The government could consider introducing the deduction for investment in infrastructure bonds up to Rs 50,000. This will result in a double benefit. Individuals would be encouraged to invest in these instruments and government would be able to access funds for meeting the development needs of the country.
Bank deposits are an important investment avenue for a common man in India. However, the trust of the common man is impacted because of recent bank failure (due to high non performing debts of the bank). Currently, deduction of Rs. 10,000 is available for interest earned in saving bank accounts or from post offices. The 2018 Budget had given senior citizens an exemption of up to Rs. 50,000 for interest earned on bank deposits, post office schemes and bonds. On the same lines, deduction up to Rs. 50,000 for interest earned on bank deposits (including fixed and recurring) should be extended to all tax payments. This will encourage savings by the middle class in banks.
The expectations of the aam aadmi is to have a higher disposable income. But it will be interesting to see how the same is balanced with the economic slowdown.
(The authors are Aarti Raote, Partner and Reena Poddar, Manager, with Deloitte Haskins and Sells LLP)Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.