More incentives for use of digital money and broadening the taxpayer’s base Budget 2017.
Budget 2017 – Demonetization was a very bold and politically risky move by Prime Minister Narendra Modi in the war against black money and tax evaders. It has been successful to a great extent, but more needs to be done to stop the further generation of black money. This is necessary, otherwise, the sacrifices given by honest citizens and taxpayers would go in vain and may work against the government in the coming elections.
The coming Budget 2017 is likely to have pro-poor schemes and increase the expenditure on development for higher growth. Therefore, there is not much scope of reduction in the tax rates, though some minor relief might be allowed.
The government is spending a lot to track financial transactions to catch tax evaders. The taxpayer base in India is quite low when compared to developed countries. Less than 4% of the total population pays taxes. This is because the cash income in India is very high. The tax rates have been reduced in the past few years to encourage voluntary tax compliance. However, there has not been much change in the tax evader’s behavior. Hence, newer strategies and schemes (Income Declaration Scheme 2016 and Benami Properties Act) have been launched to catch tax evaders.
Four steps that can curb black money
Enhance use of technology by Income Tax Department:
The tax department has access to spending and bank data. It must use data analytics to identify tax evaders and thus increase the taxpayer base. These activities would certainly have a slow and long-term impact, keeping in view the past records.
Disincentivise cash payments by introducing TDS & TCS:
A quicker way to curb tax evasion is by penalizing the use of cash by introducing a transaction tax. If subsidies to the poorest are being transferred through the banking channel to eliminate pilferage, why should other transactions be in cash? Cash transactions above a certain limit should attract 20 per cent TDS, similar to TDS on salary without PAN. There is already a 1% TCS on purchases of jewelry and bullion above Rs 2 lakh since 1 June 2016. This needs to be further strengthened by extending this to other categories, reducing the threshold limit to Rs 50,000 and raising the tax to 5%.
Incentivize use of digital money:
The Government has already incentivized the use of digital payments by lowering the deemed income of the business for a specific category of the taxpayers. The deemed income of businesses would be 6% instead of 8% if the business is being done through digital payments. Other taxpayers should be given similar benefits to help increase the use of digital payments.
Extend tax benefits and cheaper credit to fintech start-ups and portals:
Since online portals and other startups in the fintech space are also helping India to move towards digital money, the government must support them by offering tax benefits or cheaper loans. The investment from family in the startup should be allowed as a tax deduction because getting finance for the startup is not easy in India. If we support the startup ecosystem, it can become an employment generation engine for years to come.
Besides these measures, the Budget 2017 should also make certain changes in the tax structure to benefit individual taxpayers. These changes can be:
Raise basic exemption or increase Sec 80C deduction limit Budget 2017
Increasing the basic exemption from Rs 2.5 lakh to Rs 3.0 lakh will lower the tax for all taxpayers. The budget 2017 could also increase the Section 80C limit from Rs 1.5 to Rs 2.5 lakh. This increase should be specific for investment in equity for the long term. Of course, both these changes cannot be done simultaneously because revenues will be hit.
Change in LTA rules
LTA should include native place travel ticket/expenses and should be allowed every year instead of in a block of four years. Some people also want LTA to cover foreign travel. But the domestic travel industry needs to grow hence we are not expecting exemption for foreign travel.
NPS by employer under 80CCD (2d) should be mandatory like EPF
Just like EPF, it should be mandatory for employers to offer the NPS benefit under Sec 80CCD(2d). Many companies still do not offer this option to their employees. Alternatively, the 80CCD (1b) deduction should at least be increased to Rs 2 lakh.
Car lease perquisites should be made independent of corporate
Many companies do not offer tax efficient perquisites to employees, such as food coupons and car lease. The conveyance allowance is also limited to Rs 1,600 a month though the actual expense is much higher. Salaried people are not able to claim these benefits, whereas self-employed can claim a deduction for interest on a car loan, insurance and driver expense from taxable income. A car is now a basic need of a middle-class family, so it should be compulsory for employers to offer car lease.
Extend home loan Interest deduction under section 80EE
The budget 2017 may not increase the home loan interest deduction from the current Rs 2 lakh. However, it will be helpful if the benefit of additional interest deduction of Rs 50,000 under Section 80EE is extended from March 2017 to March 2021. This tax benefit will help in achieving the PM’s dream of sabka ghar ho apna by 2020.
Exempt senior citizens from TDS or raise the threshold
If interest income exceeds Rs 10,000 a year, banks deduct 10% tax at source. To avoid TDS, one can submit a Form 15G and 15H, but this poses difficulties for senior and super senior citizens. First, submitting the Form 15G requires a visit to the bank, and if the tax has already been deducted, they have to await the refund. The Budget 2017 should either exempt senior citizens from TDS or raise the threshold from Rs 10,000 to at least Rs 50,000 for them. Online submission of Form 15G and 15H should also be allowed.
Refund unclaimed TDS
The tax authorities should develop a system to refund the unclaimed TDS of taxpayers. A large number of people do not file their returns, hence the tax refund (if any) is not credited to their account. They should be sent reminders for claiming the TDS. This would be a very positive step for helping innocent taxpayers and those avoiding further tax can be brought under the tax net.
NRI TDS rules and rates should be relaxed
Presently the TDS rates for NRIs are higher as compared to residents, especially for property and equity sale. Relaxing these rules would help in increasing their investment in India and making them equal to resident citizens.
Remove mandatory books for small commission agents
Small commission agents are mandatorily required to prepare books of accounts for small income as well. They should also be included in deemed income scheme like professional and small businesses.
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