Union Budget 2020: Tax changes that can leave the common man with more money

Section 80C provides for deduction from taxable income and covers a wide range of tax-saving instruments

The Union Budget affects the common man in various ways, it has the ability to affect one’s investment and consumption patterns in a significant manner. With the Finance Minister indicating tax relief to individuals, all eyes are set on the upcoming Union Budget 2020.

The government could consider increasing the minimum threshold limit (for the amount not chargeable to tax), from Rs 2.5 lakh to Rs 5 lakh. The limit was last raised in the Budget of 2014, which was six years back. Similarly, there is a need to relook at the slab rate of Rs 10 lakh for levy of the highest tax rate and increase the same, with a corresponding reduction in the highest tax rate, preferably from 30% to 25%. This would result in much-needed relief and at the same time increase cash flow in the hands of individual taxpayers.

The current limit of deduction under Section 80C of Rs 1.5 lakh may typically get exhausted through Provident Fund (PF) contributions, tuition fee, payment of housing loan principal (if prevalent) and life insurance premium, which leaves little room for investment in other avenues. In view of the same, the exemption limit under Section 80C needs to be enhanced from Rs 1.5 lakh to Rs 2.5 lakh if not Rs 3 lakh. This measure would boost savings for investment and also provide necessary tax relief.

Taxpayers who have exhausted the limit of deduction of Rs 1.5 lakh under Section 80C can claim an additional deduction of Rs 50,000 on self-contribution towards the National Pension Scheme (NPS). NPS is a lucrative investment option for taxpayers due to the returns and additional tax benefit which it provides. With a view of encouraging the investor to save more for retirement, the government could consider raising the limit of Rs 50,000 to Rs 1 lakh.

Healthcare costs in India have also shot up in the past years. To ensure affordability and accessibility to medical treatment, the government could consider raising the limit of deduction under Section 80D from Rs 25,000 to Rs 50,000 for self and family and for dependent parent (senior citizen) from Rs 50,000 to Rs 75,000. As a result, the taxpayer would tend to take higher health cover against the increased cost of healthcare.

Earlier, Long Term Capital Gain (LTCG) from the sale of listed equity shares and units of equity-oriented mutual funds were fully exempt. However, change was brought by the Finance Act, 2018 and tax is levied on LTCG exceeding Rs 1 lakh from the sale of listed equity shares and units of equity-oriented mutual funds. The tax on LTCG has impacted investors who are already reeling under the burden of the Securities Transaction Tax. It is time that the current limit of exemption is increased from Rs 1 lakh to Rs 2 lakh to encourage participation in the capital market.

With the Budget round the corner, it remains to be seen whether the expectations will be met or not and to what extent the relief will be available for individual taxpayers.

(The writer is a Partner at Deloitte India. With contributions from Anurag Jain, Senior Manager and Shubham Goel, Deputy Manager with Deloitte Haskins and Sells LLP)