On February 26, 2010, our finance minister will be presenting his second consecutive Budget.
A lot of people are expecting a 'pleasant' Budget considering that India is expected to achieve eight per cent gross domestic product (GDP) growth against the estimated growth of 6.9 per cent, and growth estimates across the manufacturing, services and agriculture sectors are promising.
The world economy also appears to be on the verge of recovery. The time may seem appropriate to offer significant tax breaks.
However, there is another side. There is fiscal deficit which is estimated to be Rs 4.01 lakh crore for the year 2009-10 (actual deficit till December 2009 was Rs. 3.01 lakh crore) which is six per cent of the GDP as compared to 2.5 per cent of last year. In fiscal year 2009-10, the government expects shortfall in indirect tax collections target by Rs 0.22 lakh crore which resulted into increase in the direct tax target from Rs 3.7 lakh crore to Rs 4 lakh crore. Further, there is pressure to curb inflation which may put burden on government finances.
Among all this, the following are a few expectations of tax payers which the finance minister needs to suitably address.
Wishlist of 'corporate tax payers'
1. Abolition of surcharge: Corporate tax payers are hopeful that like the other taxpayers, from fiscal year of 2010-11, they will also be able to enjoy the tax rate of 30.9 per cent instead of 33.99 per cent.
2. Tax exemption to STPI units: Currently the exemption is only up to financial year 2010-11 which is causing undue hardship to operating units. This hardship can be avoided by bestowing the benefits over ten years of operation rather than restricting the same to a particular year.
3. Abolition of wealth tax: The collection of wealth tax up to December 2009 was Rs 381 crore, hence like the fringe benefit tax (whose collection for the year 2008-09 was Rs 7,997 crore), wealth tax on corporate could also be abolished which will ease the compliance burden for tax payers as well as tax authorities.
4. Extension of Dividend Distribution tax (DDT) credit to multilayered structures: Granting credit of DDT to the ultimate parent was certainly a welcome step; however this needs to be extended to all the domestic companies which will be beneficial to the multilayered corporate structures.
5. Non levy of TDS on service tax portion of the payments: Service tax collected from the customers is to be deposited with the government authorities, in such cases tax deducted on service tax creates mismatch of funds. Therefore, the existing benefit given under section 194I of non levy of TDS on service tax portion should be extended across all the other TDS sections.
6. Enhancement on monetary limits in tax audit, TDS etc: The existing monetary limits in the Income Tax Act needs revision.
Some examples are enumerated hereunder; 7. Introduction of specific guidelines on 'Profit attribution' and 'Association of Persons': Recent withdrawal of CBDT circular and instruction on this issues has caused uncertainty in the minds of tax payers which may lead to increase in income tax disputes. This can be amicably resolved by introducing specific guidelines dealing with these issues.
8. Right of appeal against orders under section 197: The order under Section 197 should be made appealable before Commissioner of income tax (appeals) to grant further right of appeal to tax a payer which is not available currently.
Wish list of 'individual tax payers'
1. Increase in housing loan interest deduction: The deduction available on housing loan interest is Rs. 150,000; the same was introduced in financial year 1999-2000.
Considering the increase in the residential houses, this limit is considerably low and should be increased to Rs 2,50,000.
2. Increase in limit of deduction under Section 80C: Deduction under 80C includes Provident fund, ELSS, LIC, Housing Loan repayment etc and the existing limit is Rs 1,00,000. The same is considerably low and many a times results into denial of benefits on full investments made by taxpayers, hence the same should be increased to Rs 1,50,000.
3. Increased in exempted allowance to salaried class or re-introduction of standard deduction: Salaried employees are exposed to tax almost on their entire income. This hardship can be minimised by either increase in the existing limit of exempted allowances or re- introduction of standard deduction which can be lower of 30 per cent of salary and Rs 1,00,000.
4. Extension of eligible investments in Section 54EC: Section 54EC provides for exemption in capital gains if the same is invested in notified government bonds.
This list of investment needs to be increased to include alternate mode of investments such as initial public offering (IPO), sector specific ELSS, etc.
Considering the pressure of curbing inflation and reduction in collection of indirect taxes, the prospect of major tax benefits to taxpayers seems uncertain in this budget. However, we will have to wait till February 26 to see whether the 'Roshgullas' offered by the finance minster are sweet or sugar free.