Salaried class expects more tax exemption in Budget

By Ravi Jain

True to the vision 2020 statement of the Income Tax Department, the NDA-1 Government partnered with the department in the nation-building process by its implementation of progressive tax policy, efficient and effective tax administration and improved voluntary compliance by enabling a taxpayer-friendly policy environment and maintaining taxpayers’ confidence in the system.

In its last term, the Government did well by bringing in e-governance, enabling transparent administration, recognising large taxpayers and considering the views of industry in its policy-making. There are now high expectations of the NDA-2 Government to complete its unfinished agenda, especially in the backdrop of India’s slowing economy and the looming threat of a trade war. While this may be challenging, the salaried class expects much from the new FM.

Income-tax slabs

The Interim Budget brought in tax rebates for individuals with a taxable income of up to INR5 lakh, without there being any change in the tax slabs to benefit them. However, those with income nominally above INR5 lakh continue to pay INR12,500 tax on their income (up to INR5 lakh) and then pay 20% tax on income above INR5 lakh. Therefore, raising the initial tax slab limit from INR2.5 lakhs to IN3 lakhs (as being exempt from tax), followed by raising the second slab limit from INR5 lakh to INR7.5 lakh, on which the tax rate is 20%, and the final slab limit of 30% tax from INR10 lakh to INR15 lakh seems high on expectations. These expectations (mentioned above) are justified by the fact that the Cost Inflation Index (CII) jumped by almost 90% to 280 for FY2018-19 from 148 in FY2009-10 when the DTC Bill had proposed the existing tax slabs (the initial tax slab being slightly lower).

Also Read: Budget 2019: What is Income Tax?

Chapter VI A deductions on the basis of certain investments

The limit under section 80C remains INR1.5 lakh for the last five years and is easily exhausted by a salaried individual via PF contributions, LIC premium payment, tuition fees, principal payment of house loan, etc. This could be raised to INR 2.5 lakhs to address inflationary pressures.

Currently, deduction of INR10,000 u/s 80 TTA is provided for interest earned from savings and post office accounts. This may be extended to interest on fixed deposits with an increased deduction limit of INR20,000.

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Employees’ well-being

Free food and non-alcoholic beverages provided by employers to employees during working hours or through pre-paid meal vouchers is a tax-free perquisite, subject to some conditions, but is limited to INR50 per meal. Increasing work-related stress in a challenging corporate environment requires healthy and nutritious food along with a regular exercise regime and raises expectations for a tax-exempt meal of INR100 and a reasonable tax exemption of INR1000 per month (if reimbursable) for use of gymnasium and yoga facilities.

Also considering the travel-related aspirations of employees, LTA exemption could be allowed every year (even to international destinations) rather than restricting it to twice in a block of four years and limiting it to domestic travel.

These initiatives will promote the salaried class’ health and happiness.

Also Read Budget 2019: Govt may set tax exemption limit at Rs 3L

Capital gains

There was a huge impact on retail investors when Long Term Capital Gain (LTCG) Tax on equity was introduced in Budget 2018. With Short-term Capital Gain being taxed at 15% and LTCG at 10%, investors do not benefit much by holding on to their position in the market for long. This has discouraged long-term investors, who were potential savers, and has resulted in short-term exits, leading to cyclical volatility and deprivation of capital formation in the long run. We hope to see some relief for long-term investors in Budget 2019. In fact, complete roll back of LTCG tax on equity would be very welcome.

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The Government’s vision of Digital India would be strengthened by the implementation of digitisation-related initiatives to make e-documents valid for assessments and record keeping to claim tax relief, exemptions, etc. Indians expect the Government’s belief in Minimum Government and Maximum Governance to be seen in terms of reasonable tax relief, increased slab limits, etc., which are in line with the current price index, and encourage Indians to invest more, engage in tourism, and have a healthy and stress-free lifestyle.

(Views expressed are personal)

The author is Partner Personal Tax at PwC India