With Budget 2020 round the corner, expectations are running high among individual taxpayers, especially after media reports that the Finance Minister has hinted at a personal tax rate cut. The rise in the cost of living has compelled everyone to streamline their finances and curb expenses and, hence, everyone is looking forward to the prospect of saving more taxes. Some tax benefits that individuals could expect from the upcoming Budget from a personal taxation standpoint, are as follows.
Reduction in personal taxes
The basic exemption limit was last enhanced way back in Budget 2014. Hence, there is a strong expectation amongst taxpayers that the finance minister will provide relief by extending the basic exemption limit to at least Rs 5 lakh. Further, the taxes for individuals could be brought down by way of a reduction in rates and extension of the slabs. The slabs and the rates could be revised to be 10 percent for taxable income between Rs 5-10 lakh, 20 percent for income between Rs 10-20 lakh and 30 percent for income above Rs 20 lakh.
Enhanced housing loan interest deduction
Prior to April 1, 2019, where an individual owned more than one residential property, she could claim only one property as self-occupied and the other house property even though not let out, had to be offered to tax on notional rental value. There was a welcome amendment last year, whereby an individual was allowed to claim two properties as self-occupied instead of one. However, there was no corresponding increase in the limit for deduction of interest on housing loan, which remained at Rs 2 Lakh for both properties put together.
There is therefore a need to amend the provision to provide for deduction of interest on housing loan in case of each self-occupied house property. Further, currently, the limit for loss on house property, which can be set-off against other income, is Rs 2 lakhs, and the remaining can be carried forward for eight years. This house property loss set-off limit should scrapped.
Increase in period for deduction for interest on education loan
As per section 80E of the Income Tax Act, 1961 (Act), tax deduction can be claimed for the interest paid on education loan obtained for purpose of pursuing higher education. Though there is no monetary limit to avail a deduction under section 80E, such deduction can be claimed only for a total period of 8 years, starting from the first year in which the individual starts repaying the loan. Since the loan tenure offered by most financial institutions is 10-15 years, the period of eight years needs to be revisited in order to encourage students to acquire the best of education.
Increase in limit under section 80C
Deduction under section 80C of the Act is most commonly availed by individuals across the country. There are a number of eligible investments and expenses listed in section 80C which qualify for deduction; for e.g., contribution to a recognised provident fund, contribution to public provident fund, life insurance premium, payment towards tuition fees for children, etc. However, the amount of deduction under this section is restricted to Rs 150,000. This limit has not been enhanced for the last 5 years. The limit under section 80C should be enhanced to Rs 3,00,000 per financial year, to encourage taxpayers to invest and at the same time, save tax.
Reintroduce infrastructure bonds
The government had provided a deduction of up to Rs 20,000 in respect of subscription to notified long-term infrastructure bonds in the year 2011 for a couple of years. In order to boost the infrastructure sector, the government could consider re-introducing infrastructure bonds with a higher cap of Rs 50,000 for the deduction.
Increase in standard deduction
Currently, the law provides for a deduction of up to Rs 50,000 for salaried individuals as standard deduction. This amount is not adequate and needs to be revised upwards to at least Rs 1 lakh.
Contribution to the National Pension System
Last year, the Finance Minister increased the cap on exemption in respect of employer’s contribution to the NPS for central government employees from 10 to 14 percent. This enhanced limit should be extended to all employees to encourage further investments in the NPS. Currently, the law provides for an additional deduction of Rs 50,000 for individual contributions. Such additional deduction should also be enhanced to Rs 1 lakh.(The writer is a Partner with Deloitte India. Mousami Nagarsenkar, Prachi Phansikar and Richa Udaipuri from Deloitte Haskins & Sells LLP contributed to the article)