Budget 2018: Personal tax changes the common man seeks from FM Jaitley
Divya Baweja, Divya Agarwal and Mitesh Agrawal
With the upcoming Union Budget, individual tax payers have started to voice their expectations from the country’s biggest financial event. The common man’s expectations are high as this could be the last regular Budget of the NDA government which has been looking to rationalize the current tax system.
The salaried class has been judiciously offering most of their earnings to tax with limited tax free allowances. In order to bring parity between them and self-employed professionals, it may be prudent to reintroduce standard deduction, last seen in financial year 2004-05, which will help them offset expenses incurred to render services. This will effectively increase disposable income for investment.
Currently, the threshold for exempt income is set at Rs 2.5 lakh. The government may raise the income exemption limit to Rs 3 lakh if the expectation of Rs 5 lakh by the common man seems very ambitious. This will further boost savings and foster investment by them. Also, the deduction limit under Section 80C could be raised to Rs 2 lakh from the current limit of Rs 1.5 lakh.
The National Pension Scheme (NPS) is another tax-saving instrument, which currently permits withdrawal of 60 percent of the total pension corpus upon reaching the age of superannuation while the balance 40 percent continues to stay invested in a life annuity. In order to popularize NPS, which is currently under the EET (Exempt-Exempt-Tax) regime, the government can raise the tax exemption limit to 60 percent from current 40 percent, thereby making the entire corpus withdrawn, tax exempt.
Certain tax deductions focused on the requirements of senior citizens (i.e. aged 60 to 80 years) is also the need of hour. They have limited sources of income, interest income from their life time savings being the larger piece. Increasing the interest income deduction to Rs 50,000 for this section of society would be a welcome step. Senior citizens also have limited expenses, majority being towards medical. Similar to very senior citizens who fall in the age group of 80 years and above, this class should also be offered a deduction of Rs 30,000 in order to meet their health expenses.
Another vital expenditure is the interest cost incurred for higher education, which has exponentially increased over the past years. Deduction is available from taxable income towards interest paid on such loan for a period of 8 years. With ever increasing loan value due to high cost of education, it is time to re-look the period of deduction of interest on education loan and increase the period from 8 years to 10 years.
Hike in real estate cost has resulted in an increase in interest cost. It is high time the limit of interest deduction in case of self-occupied house property is raised to Rs 3 lakh.
Though, increased fiscal deficit can play spoilsport to an individual’s expectations, it needs to be seen how many of the common man’s expectations will be fulfilled in the upcoming Budget.
(Divya Baweja is Partner at Deloitte India, Divya Agarwal is Senior Manager and Mitesh Agrawal is Manager with Deloitte Haskins and Sells LLP)