The countdown to Union Budget 2020 has begun! Amid high expectations, this year’s budget is coming at a time when the Indian economy is under stress. One would expect Nirmala Sitharaman, the Finance Minister to provide the much-needed impetus to strengthen the economy and move towards its vision of achieving a $5 trillion economy. From a personal tax standpoint, the finance minister will be mindful of the need to leave money with the taxpayer to fuel personal consumption and provide a boost to certain sectors like real estate. Going by the trend on corporate tax rate reduction that was introduced earlier this year, individual taxpayers are hoping for a lower tax burden around this time.
Some of the expectations that individual taxpayers may have from the upcoming budget are as follows:
Rationalising income slabs, tax rates and surcharge
Currently, resident individuals with an income between Rs 2.5 lakh and Rs 5 lakh are not liable to pay taxes after claiming a rebate. The income slab for exemption could be enhanced to Rs 5 lakh for all individuals.
Further, the tax rate applicable for income between Rs 5 lakh and Rs 10 lakh is currently 20%. The finance minister could consider reducing this to 10% and applying the 20% and 30% rates to incomes exceeding Rs 10 lakh and Rs 20 lakh, respectively (as against the existing 30% on income exceeding Rs 10 lakh).
Moreover, in the last budget, there was a steep rise in surcharge rate for the super-rich taxpayers. This increases the maximum marginal rate for such taxpayers to 39% and 42.74% for income exceeding Rs 2 crore and Rs 5 crore, respectively. The finance minister could consider lowering the tax burden for this category of taxpayers by reducing the surcharge rate to 25%.
Enhancing housing loan interest deduction
The current deduction, which is restricted to Rs 2 lakh, is not commensurative to the prevailing property prices. It would be a welcome move if the Finance Ministry increased this cap to Rs 3 lakh.
Also, in the last budget, an additional deduction up to Rs 1.5 lakh was introduced in respect of interest on housing loan sanctioned between April 2019 to March 2020 for the first-time home buyers, where the stamp value of the house property does not exceed Rs 45 lakh. The finance minister may consider extending the loan sanction period for another year and enhance the stamp duty value of the house property to Rs 60 lakh.
Increase the limit of exemption of Long Term Capital Gain
Finance Act 2018 brought a major change by withdrawing the exemption available for long term capital gain, arising from the sale of listed shares/equity-oriented mutual funds. Currently, such gain in excess of Rs 1 lakh is taxable at a concessional rate of 10%. The finance minister could consider enhancing the exemption limit to Rs 2 lakh.
Re-introduce deduction for investment in infrastructure bonds
To encourage public participation in the infrastructure development of the country, the finance minister could re-introduce the deduction for investment in infrastructure bond, which was only available for the financial years 2010-11 and 2011-12.
Increasing the limit of Section 80C deductions
The current deduction, restricted to Rs 1.5 lakh, covers several eligible payments and investments within its ambit, e.g. life insurance premiums, PPF and EPF, principal repayment of housing loan, etc. The finance minister could consider increasing the limit to Rs 2 lakh under Section 80C.
While the budget is expected to focus on measures to bring the economy back on a growth trajectory, it will be interesting to see how the finance minister balances between a populist vis-a-vis fiscally prudent budget.
(The writer is Partner, Personal Tax at PwC India. With contribution from Nishant Kumar (Associate Director) and Khushbu Sureka (Assistant Manager))
