With every annual Budget there is a growing expectation that the Finance Minister may provide some tax relief for the aam aadmi or the common man. And the inflationary pressure, especially in a changed economic environment, accentuates such an expectation, observes R. Anand, Tax Partner, Ernst & Young. He adds, however, that any fiscal stimulus is a tight-rope walk for the Government.
In the current scenario, the minimum threshold limit is Rs 1,60,000 and the slab rates are 10 per cent to 30 per cent. Ideally, the entry limit should be linked with the rate of inflation, says Anand, during the course of a recent pre-Budget email interaction with Business Line.
He suggests, therefore, that as in the case of cost inflation index notified to arrive at the indexed cost of acquisition, the minimum threshold limit can be a moving figure adjustable with the rate of inflation. Otherwise, it becomes an ad-hoc exercise without any scientific basis.
The success of any Budget largely hinges on what the common man feels on the proposals relating to personal tax, Anand avers. One hopes that some of the needs of the employment class/ middle income earners are met in this forthcoming Budget.
Excerpts from the interview
On sops for senior citizens
Savings are an essential ingredient of our economy. Senior citizens and retired people bank on savings for their daily livelihood on account of interest on deposits, savings instruments and so on.
Yields from such investments have dropped drastically in the last couple of years while on the other hand inflation which is around the double-digit level is taking a heavy toll on the expenditure side.
Further, the eligibility criteria of 65 years age limit for higher exemption limit of Rs 2,40,000 should be decreased to 60 years, being the ordinary retirement age. Also, interest on bank deposits and post office deposits constitute a vital stream of income for retired and senior citizens.
At present, this stream of income is exposed to tax and more often than not withholding tax at 10 per cent, subject to certain conditions. There is a fit case to revive Section 80L (which provided for tax deduction up to Rs 12,000 in respect of interest on certain securities) at least for popular and common investment modes such as bank deposits etc. for at least a sum of Rs 15,000.
On encouraging long-term savings and investments
The present limit under Section 80C, which provides for deduction for specified contributions/ investments needs to be upgraded from the present level of Rs 1,00,000 to at least Rs 2,00,000. Such an increase will encourage long-term savings by taxpayers and also ensure availability of funds to the Government.
When individuals plan by restructuring their immovable properties, they need to monetise such properties giving rise to capital gains. The exemption for re-investment in specified bonds, which today carry 6.25 per cent interest and three year lock-in, is pegged at Rs 50,00,000 for a financial year. This limit is not only unreasonably low, but also disregards the current property prices, which necessarily involve substantial capital gains and limited avenues for re-investment. There is a need to increase this limit of Rs 50,00,000 to at least Rs 2,00,00,000.
On a healthy approach to medical expenses
Re-imbursement of medical expenses is an important element of remuneration package. Normal medical expenditure is now exempt up to Rs 15,000. With the cost of medicine and medical treatment rising and no social security system in place, this paltry limit of Rs 15,000 should be increased to at least Rs 30,000.
On the need to revive standard deduction
The standard deduction for salaried employees should be revived. Standard deduction is not a personal allowance but was earlier given as a lump sum for meeting employment-related expenses such as on conveyance, books etc. Similar expenses are permissible deductions for businesses.
Therefore, salaried employees should also be entitled to standard deduction from their salaries (of at least Rs 50,000) when other entities are eligible for deduction of expenses incurred for earning their income.
On education-related benefits
With the ever-increasing prices, deduction for allowances such as children allowance, children hostel allowance and transport allowance deserve to be revised. The market rates for these expenses have increased manifold in the recent years. Hence, the deduction for such allowance should be considerably increased.