Increase in basic exemption limits, enhancement in home loan interest deduction and easing of the tax filing process are eagerly awaited

The first full-time woman Finance Minister (FM) is all set to present her maiden Budget of the NDA 2.0 government, on July 5, 2019. This is the time when an individual taxpayer looks forward to tax relief with the hope that he/ she will be left with more post-tax income in his/her hand.

Keeping in mind that factors such as increase in consumption, job creation and improvement in growth are some of the key agenda items for the new government, the FM may provide some relief to the middle-class tax payers.

Some of the likely changes in individual taxation, which we could expect from the government's 2019-20 Full Budget are as follows.

During the Interim Budget 2019-20, the government had increased the tax rebate to Rs 12,500 for taxpayers whose taxable income was up to Rs 5 lakh. However, there was no change brought in the basic exemption limit.

The left out middle-class salaried taxpayers may now expect the FM to bring cheer to them by increasing the basic exemption limit from Rs 2.5 lakh to Rs 3 lakh, as this would benefit even those tax payers who are not eligible for the Rs 12,500 tax rebate. This limit was previously increased from Rs 2 lakh to Rs 2.5 lakh in the financial year (FY) 2014-15, i.e. 5 years ago.

Rationalization of deductions

The current deduction limit under Section 80C of the Income Tax Act, 1961 (‘Act’), has not seen any change for the last 5 years (previously increased from Rs 1 lakh to Rs 1.5 lakh).

With the intent of encouraging financial saving and boosting investment in tax saving instruments, the government may consider increasing the deduction limit under Section 80C from Rs 1.5 lakh to Rs 2 lakh.

Another deduction, which could see an upward movement in the limit, is the amount eligible under Section 80D of the Act. This deduction is available for health insurance premium paid for self and family. Since there has been a significant rise in healthcare expenses over the years and even the medical expense reimbursement for salaried employees has been subsumed into standard deduction, the current limit of Rs 25,000 under Section 80D may be enhanced to Rs 50,000.

Deduction for contribution to the National Pension System (‘NPS’) may be increased to Rs 75,000 or Rs 100,000 from the current limit of Rs 50,000. This is a separate deduction available in addition to the deduction of Rs 1,50,000 under section 80C of the Act. This may help the government in attracting investment and liquidity in the economy and also help individuals save towards their retirement. Given the lack of social security net, one needs to plan for retirement and save, and NPS helps people plan their savings.

Interest on housing loan

To benefit the real estate sector and to further increase the impetus to the Government Scheme, ‘Housing for all by 2022,’ it is expected that the deduction for interest on housing loan may be increased from Rs 2 lakh to Rs 3 lakh for self-occupied property. This limit was previously increased from Rs 1.5 lakh to Rs 2 lakh in the FY 2014-15.

Digital initiative

With the objective of enhancing the tax payer’s experience and continuing its digital journey, it is expected that various manual procedures may be brought into a digital platform to simplify the processes such as issuance of Tax Residency Certificate, faster processing of income tax returns leading to faster processing of refunds and transfer of PAN from one jurisdiction to another.

Also, considering the fact that that the Central Board of Direct Taxes (‘CBDT’) has extended the due date for issuance of Form 16 from 15 June 2019 to 10 July 2019, for the FY 2018-19, it is expected that the income tax return filing deadline for the said FY may be extended, to allow sufficient time to taxpayers to file their income tax returns.

The middle-class salaried individuals have many expectations from the new FM and are hoping for some of them to be met. For the time being, we will have to wait and watch.