Key expectations from Budget 2009

Key expectations from Budget 2009
The Budget 2009 is to be presented shortly by the finance minister. Like every year, there is a lot of expectations from all sections of the society, including the common tax payer.

A few of the key expectations include the following -

Revision in tax slab rates for individuals
The global economic slowdown has impacted the Indian industry and business, which in turn has put pressure on the income levels, job security, etc., for the individuals. Therefore, there are lots of expectations from individuals to provide some relief from tax this year. Currently, the minimum amount not chargeable to tax for individuals is Rs 150,000. This should be raised to Rs 250,000.

Correspondingly, for females this limit may be increased from Rs 180,000 to Rs 300,000 and for senior citizens this should be revised from Rs 225,000 to Rs 350,000.

Reduction in peak rate of 30%
The maximum rate of individual income tax is 30% which with surcharge and education cess amounts to 33.99%. This is on higher side as compared with other countries like Russia, Hong Kong, Singapore, etc.

Further, under the current tax provisions, not many exemptions/deductions are available to individuals, especially the salaried individuals. Therefore, the peak rate of 30% should be reduced to 25%.

This will increase the purchasing power of the individual and stimulate demand in the economy.

Surcharge on tax for individuals
Surcharge @10% on tax is levied if total income of an individual exceeds Rs 10,00,000. Surcharge was introduced as a short-term measure to collect revenue to meet certain contingencies being faced by the country. Therefore, the surcharge should be removed.

Limits for deduction u/s 80C
Currently, the deduction allowed u/s 80C of the Income-tax Act, 1961 (the Act) is limited to Rs 100,000 for different investments/ expenses incurred by individuals.

In view of the fact that there is no comprehensive social security scheme in India (though a good beginning has been made recently with the New Pension Scheme), that could provide support and take care of individuals after their retirement this limit is very low in today’s context. Therefore, this limit should be enhanced to say Rs 200,000 per annum.

Medical reimbursement by employer
The non-taxable medical reimbursement to the salaried employees by the employer is limited to Rs 15,000 per annum for self and dependents. This amount is very low as medical expenses have witnessed substantial increase in the last few years.

A re-look in this matter to enhance the limit, with adequate checks to curb misuse of claiming frivolous expenses, is desirable. The limit could be increased to Rs 50,000 per annum to provide genuine relief to the employees.

Further, there is no significant loss to the revenue as Fringe Benefit Tax (FBT) is paid by the employer on the non-taxable portion of the medical expenses.

Transport allowance
Transport allowance is presently exempt from tax to the extent of Rs 800 per month i.e. Rs 9,600 per annum. This exemption is on account of conveyance expenses incurred by the employee on travel from home to office and back.

Keeping in view the rising transportation costs, the amount of exemption does not compensate for such expense. Therefore, this limit should be enhanced to provide relief to the employees. A more realistic limit would be Rs 2,500 per month.

Alternatively, if the amount is not proposed to be increased, this allowance could be removed altogether and the slab rates for taxes increased accordingly to provide relief in respect of transport expenses incurred by the employees.

Interest on house property
The present limit for claiming deduction u/s 24 of the Act on interest paid for loan taken on house property is restricted to Rs 150,000 for a self-occupied house. Keeping in view the upward revision in the interest rates on housing loans and the ever increasing property prices, it is only practical that this upper cap be enhanced substantially to provide some relief from the high interest burden. Accordingly, the limit could be increased to Rs 250,000.

Age limit for senior citizens
Generally, the retirement age for individuals is around 60 years. However, under the Act, a person qualifies to be senior citizens on attaining 65 years of age. Therefore, the age limit for senior citizens should be reduced to 60 years so that they can avail the benefit of higher threshold in income tax slab rates.

New Pension Scheme - self employed
Even though every Indian citizen including salaried employed and self employed is eligible to participate in the New Pension Scheme (NPS), however, tax deduction u/s 80CCD is available only to salaried employees. Therefore, this anomaly needs to be corrected by making necessary amendment in the Act and thereby providing relief to all individuals including non-salaried employees.

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The highest tax rate of 30% is triggered at a very low level of income of Rs 500,000. This limit should also be enhanced to Rs 1,000,000. This will provide more disposable income in the hands of individuals and hence boost the consumption, saving, and investment in the economy. This in turn will help the corporate sector which is facing recessionary pressure owing to global economic crises.

New Pension Scheme - EET
Currently, the NPS works on exempt, exempt, tax (EET) model. Therefore, income/amount received finally at the retirement age would be liable to tax. In contrast, the other retirement schemes like Provident Fund (PF), Public Provident Fund (PPF) etc work on exempt, exempt, exempt (‘EEE’) model. Therefore, in order to popularize NPS and encourage individuals to participate in the scheme, the EEE model should be extended to NPS.

To sum up
Individual tax payer has lots of hope and expectations from the finance minister in the current year’s Budget.
The FM, on the other hand, also has a challenging task to contain the increasing fiscal deficit keeping in view the tough economic situation.
Therefore, he should do the balancing act.
source - ET