JOIN USThe Union Budget 2018 will be the last full-year Budget for the current government. Economic growth has been sluggish due to demonetisation and the GST. With growth now again beginning its northward journey, chances are low that the government will announce populist measures in the forthcoming Budget.
The government would continue to provide impetus to specific areas to spur economic growth, such as infrastructure, healthcare and tourism, while keeping in mind the needs of the low and middle-class individuals. However, like all years, there are many expectations by individual tax payers.
Revisiting the tax slabs: Last year's Budget reduced the tax rate to 5% for the lowest slab (Rs 2.5 lakh to Rs 5 lakh). However, it did not revisit the tax slabs. With an intent to widen the tax base, it is unlikely that the government will reduce the lowest slab. One has to watch how the Budget amends the tax slabs to meet the expectations of low and middle-class individuals.
Enhancing the limit for investment-related exemptions (80C), the current limit of Rs 1.5 lakh encompasses saving instruments (FD and PPFs), life coverage, as well as expenditure on housing loan repayment and tuition fees. The focus on encouraging savings and investments should be enhanced. This may be achieved by increasing the limit to, say Rs 2.5 lakh, which would cover investment avenues. A separate limit can be carved out for expense-related deductions.
Self-education: An individual may have to enroll for some courses to upskill, considering dynamic changes in job requirements that seek specialised skill sets. However, as of now, there is no specific deduction available for such individuals. Hence, a separate deduction threshold should be set if an individual is investing for his skill development.
Deduction in terms of health insurance premium: Deduction of Rs 25,000 (non-senior citizens) is available for individuals towards health insurance premium and payment on comprehensive medical check-up. However, with rising medical costs and the unavailability of a government-sponsored comprehensive healthcare system, a higher deduction limit of Rs 50,000 could likely be required, to ensure adequate coverage for individual taxpayers.
Rationalising retirement plans:
Expectations would be high from the Budget to move a step forward towards making India a pensionable society.
In order to bring the NPS on par with Provident Fund and Public Provident Fund, the EEE (Exempt Exempt Exempt) benefit should be extended to NPS. Currently, NPS is subject to income tax under the EET (Exempt Exempt Tax) regime; withdrawals made from NPS are taxed in the hands of the individual to the extent of 60%. However, this is not in parity with provident fund, which is under the EEE regime. The government has positioned NPS as an alternative to PF. Therefore, to bring parity and incentivise employees to be part of NPS, teh latter must be brought under the EEE regime.
Boost to housing sector: The Finance Act 2017 restricted the loss from house property, which could be set off against other income, to Rs 2 lakh. House property loss in excess of Rs 2 lakh has to be carried forward, and adjusted against the rental income of future years.
An individual who buys a property with a loan of Rs 50 lakh, will have to pay interest amount more than Rs 3 lakh per annum in the initial years of loan (assuming the loan period is for 20 years). Given the increasing cost of property and rate at which loans are availed, the current limit of deduction for Rs 2 lakh is insufficient and could be increased to Rs 3 lakh per year to allow taxpayers to set off a larger part of the house property loss against other income. As per well-established canons of taxation, income tax is levied on any income actually earned. This notion however doesn't hold good for taxability of house property for 'Deemed to be let out property', where tax is imposed on notional income. Hence, deemed income concept should be removed as it taxes income which has not been earned.
Investment in infrastructure bonds:
With the government's 'Make in India' campaign and with the thrust on infrastructure, the deduction available on investment in infrastructure bonds needs to be restored.
An enhanced limit of Rs 50,000 (as compared to Rs 20,000) can be considered. The government is expected to take measures to reboot growth and provide tax relief to those who need it the most, while ensuring fiscal prudence.
(Ghose is Partner at Deloitte India, and Bharech is manager with Deloitte Haskins and Sells)