With another Union Budget approaching, Finance Minister Arun Jaitley will be inundated with presentations from industry bodies. One wonders what might have been if the common man, burdened by small costs that bloat his monthly expenses, also had a representative.
The small costs are many: With the minimum auto fare in Mumbai at Rs 17, for any person to travel to and fro by an auto daily, he would have to spend Rs 850 a month (25 days), while the existing monthly tax exemption limit, set in 1998, is only Rs 800. In Delhi, the minimum auto fare is Rs 25.
Read our full coverage on Union Budget Patna-based entrepreneur Anil Choudhary says: "Children's education allowance is only Rs 100 a child, whereas the minimum cost of tuition is more than Rs 1,000 a month. Similarly, the tax-free transportation allowance is Rs 800 a month. Even in a comparatively cheaper city such as Patna, our family spends nothing less than Rs 3,000 a month on this."
In these inflationary times, many of the limits are ridiculously low. Worse, these have remained unchanged for about a decade and a half. "Many of us don't even claim these benefits because the amounts are too small. It only means excess paperwork, which is not worth the exemption amount. The government should look into this because it increases our household's monthly expenses substantially," says Choudhary.
Since the limits were set, things have changed dramatically: The Sensex has risen from 3,360 to 29,462 points, growing at a compounded annual rate of 12.82 per cent, while average Consumer Price Index-based inflation has increased 7.06 per cent annually.
Amarpal Chadha, tax partner, EY India, says, "Considering the inflation and increased costs, the finance minister could consider increasing the current exemption limits for conveyance allowance, education and hostel allowance, as these limits were fixed about a decade ago. The medical exemption limit could be enhanced from the current Rs 15,000 to Rs 50,000, given the rising medical costs and lack of adequate health coverage."
Higher basic exemption, 80C and slabs:
Tax experts hope the Budget will also address other aspects, such as slabs. Parizad Sirwalla, partner and national head (global mobility tax), KPMG India, said: "Currently, the highest rate of tax (30 per cent) is triggered in case the taxable income exceeds Rs 10 lakh. In line with global tax practices and the recommendation of the parliamentary standing committee on the Direct Taxes Code, the tax slabs might be revised." She expects the revision will be done in such a way that there is no tax on taxable income of Rs 3 lakh and that the 10 per cent, 20 per cent and 30 per cent rates kick in for the Rs 3-10 lakh, Rs 10-20 lakh and Rs 20 lakh-and-beyond brackets, respectively.
Many think section 80C limits need reconsideration. This entails a number of products, including life insurance, home loans, provident fund, equity-linked savings schemes and fixed deposits, most people are unable to make optimal use of the section. While some such as Sirwalla say the limit should be increased by Rs 50,000 to Rs 2 lakh, Divya Baweja, partner, Deloitte Haskins and Sells LLP, says the government should double it to Rs 3 lakh. "This would translate into additional saving of Rs 10,300 for individuals aged less than 60 years, resulting in a higher take-home. This could give a fillip to the savings potential," says Baweja.
Reintroduction of infrastructure bonds:
In 2010, then finance minister Pranab Mukherjee had allowed deduction of Rs 20,000 under section 80 CCF for investments in long-term infrastructure bonds. However, that was not continued. Experts say reintroducing such bonds and tax deduction would encourage long-term funding to the infrastructure sector. "To further augment long-term funds, this deduction limit might be enhanced up to Rs 50,000 a year," adds Sirwalla.
Lowering FD tenure for exemption:
The previous Budget brought about some parity amid debt instruments by increasing the holding tenure for long-term capital gains benefits. If an investor sells the units in less than 36 months, capital gains will be added to their income and taxed as according to their tax bracket, as is the case with bank fixed deposits. This year, experts expect some more tweaking. It is expected like debt funds, fixed deposits of a three-year period will get benefits under section 80C. As of now, only five-year fixed deposits qualify for this.
Improved taxpayer experience:
Says Chadha: "As part of improving the taxpayer experience, the government has set up a Tax Administration Reform Commission (Tarc). It will be good if Tarc's suggestions such as further empowering the ombudsman and educating tax officers on complex tax matters are considered in the Budget." Sirwalla says other recommendations such as a dedicated organisation to deliver taxpayer services and avoidance of tax demands not on merits might be duly considered and implemented by the government.