The Union Budget 2018 is round the corner. As in previous years, expectations continue to be high this time also. Individual taxpayers, specially lower and middle class, have been most affected from the rising inflation. They expect that Budget 2018 will address their woes.
Revisiting the tax slabs and rebate
Last year's Budget reduced the tax rate to 5% for the lowest slab (Rs 2.5 lakh to Rs 5 lakh). It did not revisit the tax slabs but reduced the threshold for claiming the rebate under section 87A, from Rs 5 lakh to Rs 3.5 lakh, available to a resident individual.
It also reduced the maximum rebate which can be claimed under that section from Rs 5,000 to Rs 2,500. The result was that resident individuals with taxable income up to Rs 3 lakh continued with no tax liability. However, those with taxable income in the range of Rs 3.5 lakh to Rs 5 lakh, did not get the entire benefit of reduction in tax rates.
Hence, Budget 2018 should reinstate the threshold for claiming the rebate to Rs 5 lakh so that benefit of reduced rate flows to individuals whose taxable income is in the range of Rs 3.5 lakh to Rs 5 lakh. This will help the government meet the expectations of the low salary earner group.
Re-introduction of standard deduction for salaried individuals
The benefit of standard deduction was available to salaried individuals till financial year 2004-05. An individual engaged in business/ profession is able to claim deduction for expenses incurred.
On the other hand, a salaried individual is not entitled to claim deduction for expenses incurred while performing his duty which is not on par with individuals engaged in business/ professions.
Standard deduction is available to salaried employees in many countries. Recently, the US also increased the standard deduction for its resident individuals.
Salaried individuals can adjust the salary income against any loss from house property. Finance Act 2017 restricted the loss from house property which could be set-off against other income, to Rs 2 lakh. Prior to that, the threshold of Rs 2 lakh was for self- occupied properties only, and individuals were able to adjust loss from rented property without any limit.
A lower limit of Rs 2 lakh restricts salaried individuals from buying a house as the EMI burden would be heavy without sufficient tax benefit. Given the increasing cost of property and the 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.
Exemption limit for various allowances and reimbursements
The exemption limits for conveyance/ education allowance/ medical reimbursements were fixed long back and have not changed despite continuous inflationary conditions. Hence, these limits need to be considerably raised upwards.
Exemption for leave travel concession is available for two calendar years in a block of four calendar years. The government should replace the concept of calendar year with financial year (April – March) in line with other provisions of the Income Tax Law. Further exemption should be made available in respect of at least one journey in each financial year.
Other expectations
Section 80C provides a deduction of Rs 1.5 lakh for specified investments and deductions. The overall limit Section 80C needs a relook; it is time that the same is increased from Rs 1.5 lakh to Rs 2 lakh.
Section 80D provides deduction of Rs 25,000 (non-senior citizens) for individuals towards health insurance premium and payment on comprehensive medical check-up. However, with rising medical costs, a higher deduction limit is required to ensure adequate coverage for individual taxpayers.
The government will be presenting its last comprehensive Budget and taxpayers would continue to expect relief from the Budget. However, one has to wait and see how the Finance Minister meets the expectation of salaried taxpayers while reining in the fiscal constraints of the economy.
(Tapati Ghose is Partner, Deloitte India, and Vijay Bharech is manager with Deloitte Haskins and Sells LLP)
