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Budget Expectations: Govt Should Bring Back Standard Deduction For Salaried Class

The Finance Minister should consider either reducing the individual tax rates or increasing slab limits

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Union Budget 2018-19 would a budget to watch since it would be the first post-GST budget and last full budget before the general elections of 2019. In November, the Finance Ministry constituted a six-member task force for Direct Tax reform. Although the committee is likely to submit its report by May 2018, the Budget speech may include some direction on the tax law. Few changes are expected under the personal and corporate tax making it more contemporary and competitive to be in line with world tax regimes.

Few expectations are as follows:
1. Tax Rates:  Much expectation also revolve around reduction of Effective Corporate Tax rate giving respite to companies on this front, making them more competitive with the world tax rates. As far as the personal tax rates are concerned, the budget proposals relating to tax slabs, deductions and exemptions are very closely watched by Indians. Expectations exists to provide certain reliefs to middle tax slab payers.

2. Bring back standard deduction for salaried class: The Finance Minister should consider either reducing the individual tax rates or increasing slab limits. While others are paying tax after the deduction of expenses, the salaried class is obligated to pay tax at the gross level. This is an unfair arrangement. The best way to resolve this would be to bring back 'standard deduction'.

3.  Offer tax relief to Senior Citizens: Senior citizens having an income of up to Rs 10 lakh per annum should be offered a deduction of Rs 75,000 towards interest on fixed income instruments. In addition, they may also be allowed a deduction of Rs 50,000 for their routine medical expenses.

4.  Abolition of DDT: Quite a few expert professionals are of the view that DDT may be demolished in 2018, thereby reinforcing the classical taxation system of dividend income to be taxed at the hands of the recipient shareholders. This would make corporate tax rate competitive and would also let foreign investors get credit of tax in their home countries, thereby improving the return on their investment.

5.   Creating a separate tax exemption for Term Life Insurance: Currently, the maximum tax exemption via Section 80C of the Income Tax Act is Rs. 1.5 lakh. The industry wants to encourage more people to buy term plans, which help people insure their lives adequately at low premium costs. The industry wants a separate exemption limit for premiums paid towards term insurance.

6.   Increase duration for education loan deduction: Under Section 80E, the interest paid on an education loan from a qualified lender can be claimed as a tax deduction. But this benefit is available only for a maximum of eight financial years. The average borrower may have to extend the loan well beyond eight years. So the window for tax deduction should also be widened.

7.   Increase in tax free limit of medical allowance: Companies usually cap the medical allowance at the tax free limit of Rs 15,000. If this limit is revised upwards, companies will also be encouraged to hike the allowance.

8. Increasing the limits on Affordable Housing: Recently, interest rate subsidies on home loans have been provided to Middle Income Group households. For example, households earning between Rs. 6 lakh and 12 lakh a year can claim a 4% subsidy on home loan amounts up to Rs. 9 lakh. Households earning between Rs. 12 and 18 lakh annually can receive a 3% subsidy on loans amounts up to Rs. 12 lakh. The industry wants these caps to be raised so that they’re in tune with the ever-escalating costs of property ownership in urban areas.

9.  Tax developers for unsold inventory to bring down real estate prices: The Budget should introduce a 10% tax on holding on to inventory after all aspects of building construction are complete, and the occupation certificate has been obtained. This will compel builders to reduce inventory in finished projects and the increased supply will bring the prices down. However, the impact of this move will last only as long as the existing inventory does.

10.  Increase TDS limit for bank interest: The Tax Deducted at Source limit for bank interest should be raised from the current Rs 10,000 especially as the limit of Rs 10,000 was last set in the year 1997. This will ensure more interest in hand for bank customers.

11.  Push UPI harder: The UPI is seen by the industry as a better alternative to POS machines. In the near future, a vast majority of Indians will be connected to the internet via smartphones. It would, therefore, be prudent to push UPI harder since it is highly scalable, cheaper than POS, and requires lesser maintenance.

12.  Bring FD taxation at par with debt mutual funds: Millions of Indians prefer to invest via the humble fixed deposit which, though safe and reliable, is highly tax-inefficient. If you’re in the 30% tax bracket, a 7% FD actually earns you 4.9% which wouldn’t beat inflation or aid wealth creation. Therefore, the industry proposed to bring the taxation on FD returns at par with debt mutual funds, wherein an investor is taxed only upon redemption and if redemption is after three years, the tax is calculated on the Long Term Capital Gains at 20.6% with indexation benefits, which significantly reduces tax outgo.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Union Budget 2018 taxes affordable housing

Nishit Dhruva, Managing Partner, of MDP & Partners

The author is Managing Partner, of MDP & Partners has over 25 years of experience in the legal field. He started of his career at his family firm, M. Dhruva & Co., which under his leadership and guidance, merged with J. Sagar & Associates (JSA) from the years 2008 to 2010. Nishit has an extensive experience of over two decades in Dispute Resolution, Real Estate and Corporate & Commercial law practice

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