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Budget expectations: 'Aam Aadmi' requires some tax breaks
February, 26th 2010

By Preeti Kothari and Lovina Dias/PWC

Someone has rightly said that A budget is just a method of worrying before you spend money, as well as afterward. A Budget comes with umpteen hopes and fears, yet, the expectations from it remain countless.

With prices on the rise and our tax structure not adjusted for inflation, the middle-class and lower middle-class segments deserve a sizeable tax relief in the forthcoming Budget, to be presented on February 26, 2010. The year 2009 has undergone substantial reforms at the income-tax front with the draft Direct Tax Code (DTC) which was unveiled, in addition to the two budgets .

Yet, it has left the aam aadmi with a dark sky above his head. Expecting the DTC rollout to be effective from the next financial year, it appears unlikely that there would be liberal concessions for this class this time around, nonetheless, certain important areas of taxation for the salaried class do merit a change:

Basic Exemption:
Perquisite taxation has made a comeback, which has brought glad reactions from the corporate world. Nonetheless, it has adversely impacted the net take home pay of the salaried aam aadmi. An individual earning income through business or profession is allowed to claim a deduction in respect of any business expenditure incurred by him. However, a salaried individual is left with no such options .

Even the clause relating to standard deduction to salaried individuals has been omitted by the Finance Act 2005, leaving no such benefit to the salaried individual. This essentially necessitates a consideration for the increase in the basic exemption limit.

Year after year, prices continue to rise. Yet according to our tax structure, the cost inflation index is applied only for the purposes of levying capital gains tax. We also have to realise that despite the recent increase of GDP growth rate to 7.20  per cent, this has not helped the salaried individuals.. Considering these factors, there is a NEED for an upward revision of the basic exemption limit.

Stingy Exemptions:
A few attractive exemptions provided to the salaried individuals, however with ridiculously low limits are not in tune with the market realities. Such reliefs are those such as children education allowance (Rs. 100 per month per child with a restriction of two children), allowance to meet hostel expenditure (Rs. 300 per month per child with a restriction of two children), transport allowance (Rs 800 per month), house rent allowance, exemption for the reimbursement of medical expenses (Rs 15,000 per year) and so on. The education costs, house rents and the cost of medical facilities have sky-rocketed As such, these exemptions nowhere match up with the costs. Hence, a relook at these clauses is a sine qua non.

Interest on housing loan:
The cost of housing has skyrocketed since previous few years. Nevertheless, the deduction for interest on housing loan has remained static, since over a decade. This warrants the limit to increase significantly, which could ease the hardships of the aam aadmi atleast to some extent.

Investment in pension schemes:
Since pension addresses a special need and it cannot be compared with the other tax saving instruments which are general in nature, section 80CCC should be made independent of Section 80C and 80CCD. The current deduction for section 80CCC for pension schemes has been clubbed within the overall limit of Rs 1 lakh for section 80C and 80CCD. There should be a separate limit for pension schemes, which would augment the investments for post retirement income.

To change the current reaction of the aam aadmi, which is rich get richer, rest get consolation, the Budget 2010 is eagerly awaited with a hope to meet  his expectations.

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