The aggregate limit for sections 80C, 80CC and 80CCC remains unchanged at Rs 1 lakh. Considering that individuals have to save and invest higher amounts to be able to maintain their post-retirement security, this limit should be doubled to Rs 2 lakh.
THE FORTHCOMING BUDGET should provide some relief for the salaried class.
The common man or the "aam aadmi" is perhaps the most affected by today's rising prices and hardening interest rates.
Inflation is threatening to touch 7 per cent. To curb that, the Government has no option but to restrict money supply by increasing interest rates.
At the same time, due to growing opposition from the Left, pension funds and provident funds are not able to access the equity market in order to improve returns on savings.
Individual taxpayers, especially the salaried class, are seeing rapid erosion in their ability to save and invest for their future. Added to that is the anxiety that with mounting inflation and reducing returns, what they are setting aside today may be woefully inadequate in providing a secured future.
In this scenario, the expectation from the Budget is indeed great. The tax revenues have been extremely buoyant; the economy is on a "roll", there can be no better time for the Finance Minister to provide tax relief to individuals than now.
The minimum amount that is exempt from tax is currently pegged at Rs 1 lakh with higher limits for working women (Rs 1.35 lakh) and senior citizens (Rs 1.85 lakh). The present limits should be increased by a further Rs 1 lakh with a corresponding shift in the other slabs as well.
The low and middle-income group will be greatly benefited by this move. While we are on this subject, it is high time that the age limit for senior citizens was reduced from the present 65 to 60 years. Most employees retire and start earning their pensions at 60. It is unfair to tax them at normal slab rates when their earnings suffer a significant drop.
Last year, the Government added long-term bank deposits to the list of items eligible for deduction under Section 80C. However, the aggregate limit for sections 80C, 80CC and 80CCC remains unchanged at Rs 1 lakh. Considering that individuals have to save and invest higher amounts to be able to maintain their post-retirement security, this limit should be doubled to Rs 2 lakh. This is more so, considering that at any time the Government may introduce the Exempt Exempt Tax method of taxing savings. The increase in limits will also help channel some of the savings to more long term and secure investments, savings that are otherwise being channelled into the far riskier stock markets or are being squandered in current consumption.
Similarly, Section 80D provides deduction for medical insurance premia. The present limit of Rs 10,000 is not enough if one were to provide comprehensive medical coverage to the family including dependents.
Considering the current low penetration of insurance in India, it is suggested that this limit be at least doubled to enhance the level of coverage that individuals can be encouraged to procure.
The surcharge of 10 per cent, currently levied on incomes in excess of Rs 10 lakh, has been a sore point for years.
While it is levied on the higher income group, the fact that the surcharge was levied to meet unforeseen calamities like the Gujarat earthquake cannot be ignored. By God's grace, we have had no calamities during the year and there is no justification to continue with this levy.
Though not something that needs to be dealt with in the Budget, the introduction of Form 2F has been hugely unpopular as it requires taxpayers to provide detailed cash flow analysis.
Such a move is highly intrusive and, in my view, unnecessary. Some positive assurance from the Finance Minister in this regard will be welcomed by individual taxpayers.
Amitabh Singh (The author is a Tax Partner, Ernst & Young.)