As most of us are aware, the present government has come to power on agenda of development and controlling black money. Hence, budget proposal is expected to focus on higher economic growth and eradicating corruption. Modi Government has identified and started working on key initiatives of “Make in India” and “Skill, scale and speed” for higher growth. Thus, tax proposals should be focusing on controlling black money and generating long term investments. Keeping in view these goals some of the expectations from the budget 2015 are to:
Attack black money and increase the tax base instead of tax rates: Common man should not be burdened with more tax in the current scenario of high inflation and low savings. The right direction and action is to catch the black money holders, i.e., tax evaders. The number of tax evaders and amount of tax evaded can be expected to be similar to the number of tax payers and amount of tax paid by them, as the cash based economy is assumed to be of the same size. Currently, there are only 34 million taxpayers in India, despite being a country of 1.2 billion people. Even a layman knows that actual number of people with income more than the exempt limit of Rs. 2 lakh would be much higher than this.
Make E-filing mandatory for all to save taxpayers’ money: Budget 2013-14 made it mandatory for people with annual taxable income above Rs. 5 lakh to file their returns in the electronic mode. Now, making 100% e-filing would further help in reducing the tax evasion and faster refund. There is a big cost and many problems associated with managing the paper return collection and processing at the end of income tax department which can be saved and utilized for making the process more automated. Saving on collection and processing of manual return implies saving of taxpayers’ money which can be utilized on education or health.
Do away with physical ITR V to make it really online: The I-T department and private portals have made e-filing more user-friendly but even after 7 years, physical submission of ITR V is the biggest pain attached to e-filing. It has been planned to introduce electronic PIN-based verification for e-filers from the past few years. This would mean that the return filers need not send a hard copy of acknowledgment ITR-V to the CPC in Bangalore after filing returns. However, the change has not been enacted yet. Hopefully, they will try to push and do away with this redundant dependency on this physical aspect of e-filing.
Increase scrutiny through more tax notices: The tax collection has to be increased without increasing the rates which means greater scrutiny of taxpayer’s income. Newer fields are being included in the return for getting additional information about income, e.g., landlord’s PAN for HRA exemption. Tax notices are being issued in lakhs and in many cases taxpayers are required to visit local ward even after e-filing. One should be allowed to submit online or speed post the documents/information required by the assessing authority.
Make NRI tax laws investment friendly: With a view to attract investment in long term infrastructure bonds in foreign currency, the rate of tax on interest paid to non-resident (NRI) investors was reduced last year from 20% to 5%. It has been proposed to extend the same benefit to the investments made through a designated bank account in rupee denominated long term infrastructure bonds.
Replacement or reconstruction of RGESS: Keeping in view the government funds requirement for pushing growth through MAKE IN INDIA campaign, the Rajiv Gandhi Equity Savings Scheme (RGESS) is expected to be liberalized or replaced. In current format, it has received a cold response due to which investment in the scheme is not significant. Hence, change is inevitable to attract investment from taxpayers including the first time investors. Taxpayers may be allowed to invest in mutual funds as well as listed shares as a continuous investment like provident fund, wherein if you withdraw before five year or discontinue, the amount becomes taxable. The income limit for investment eligibility is expected and may be removed for realizing “Make In India”.
Reduction in the Property Transactions value: Tax Deduction at Source (TDS) at the rate of 1% on the value of the transfer of immovable property where consideration exceeds Rs. 50 lakh was started last year. The limit is expected to be further reduced to Rs. 30 lakh to control the black money. Similarly, TDS on sale of agricultural land may be imposed. This can help the government to achieve revenue target and catch tax evaders. This would also bring agriculture land along with urban land as an asset.
Better deal for First time home buyers or those owning only one home: On one hand, there is a big inventory of residential properties and on the other side, majority of taxpayers have not bought even their first home. The additional deduction of Rs. 1 lakh may be continued and even a higher deduction can be expected. Currently, this is applicable for loan amounting Rs. 25 lakh availed during the period 1.4.2013 to 31.3.2014 against house property not exceeding Rs. 40 lakh. These limits could be increased to Rs. 40 lakh loan for house valuing Rss 50 lakh to be entitled to an additional deduction of interest of upto Rs. 3 lakh. This will promote home ownership and give a boost to a number of industries like steel, cement, brick, wood, glass etc. besides jobs to thousands of construction workers.
Increase in Section 80C limit focusing on retirement i.e. long term investment: Retirement savings could have separate deduction limit of Rs. 1 lakh paid to pension funds, i.e., NPS and mutual funds dedicated to retirement plans. Since, equity investments are advisable for long term and saving for retirement is the need of hour.
Besides the above, one can expect higher deduction in below cases where the limit has not been revised for the past many years. It is necessary for making these deductions relevant and beneficial for today’s taxpayers:
- Rent deduction u/s 80GG for self employed to be increased: Self employed professionals should also be able to claim higher rent like HRA exemption for salaried taxpayers. Right now the exemption is capped at a mere Rs. 2,000 per month for rent paid by self employed.
- Medical Reimbursement: Limit for exemption for Medical reimbursement perquisites should be increased to Rs. 30,000 from the existing Rs. 15,000 to meet the increased cost of Medical services.
- Transport Allowance: The transportation allowance granted by the employer to his employee for commuting between the place of work and residence is tax-free to the extent of Rs. 800 per month. This limit was fixed more than a decade ago, and needs to be revised upwards to at least Rs. 3,000 per month, given the rising commuting costs.
- Leave Salary exemption to be Rs. 5 lakh: Presently leave salary is exempt on retirement to a maximum of Rs. 3 lakh which was fixed in 1998. If we consider the inflation alone, the limit may be increased to Rs. 5 lakh. This is similar to increase in exempted amount of gratuity to Rs. 10 lakh from Rs. 3 lakh, done in the past.
- Food coupons: Value of free food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal. Looking at present inflation, it should be Rs. 100 per meal.
- Staff Loan limit may be increased: Interest free/Concessional loan to employees is exempt, where Loan amount does not exceed in aggregate of Rs. 20,000. It will be good if this limit is revised to at least Rs. 50,000.
Some of the above expectations are continuing from the past many years. But this time, there is even more need and opportunity to take action on them.
Click here to read our article on changes proposed in Budget 2015.