1. Here’s what to expect from Budget 2017 for the salaried class

Here’s what to expect from Budget 2017 for the salaried class

With the Union Budget 2017 just a couple of weeks away, there are expectations that the government will take some measures to help the common man, especially the salaried class, who has rallied behind the government’s decision on demonetization despite suffering a lot post the note ban.

By: | New Delhi | Updated: January 19, 2017 11:14 AM
It is widely expected that there may be some upward revision in the income tax slabs to provide some relief to the common tax payers. (Reuters) It is widely expected that there may be some upward revision in the income tax slabs to provide some relief to the common tax payers. (Reuters)

With the Union Budget 2017 just a couple of weeks away, there are expectations that the government will take some measures to help the common man, especially the salaried class, who has rallied behind the government’s decision on demonetization despite suffering a lot post the note ban. Experts are also of the view that the upcoming Budget should provide some tax gain for the common people to soothe at least the cash ban pain.

Otherwise also, “there are only a few tax concessions available to individual tax payers. Most of the current set of tax benefits like medical reimbursement, conveyance allowance etc., at the present level, do not offer any real economic benefit to the individual tax payers. Instead they only add to the administrative burden for the employers as claims made by the employees have to be reviewed and processed by them,” says Vikas Vasal, National Leader-Tax, Grant Thornton India LLP.

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Thus, either these tax benefits should be substantially increased or they should be done away with and instead a special tax benefit like the erstwhile standard deduction be introduced. “This would simplify the tax law, reduce administrative burden and curtail unnecessary litigation associated with these tax concessions,” suggests Vasal.

In view of the above, here’s what to expect from the Budget for the salaried class:

1. Tax slab rates should be revised upwards

It is widely expected that there may be some upward revision in the income tax slabs to provide some relief to the common tax payers. What is making people more optimistic is the recent hint from Finance Minister Arun Jaitley himself that income tax slabs could further be increased, lowering the tax burden on taxpayers due to higher revenue being collected on account of cashless systems.

Some people are even expecting that the government should increase the current income tax exemption limit from Rs 2.5 lakh to Rs 4 lakh. However, the common expectation is that the exemption limit be raised from the current Rs 2.50 lakh per annum to Rs 3 lakh, while the subsequent slabs of 10 per cent, 20 per cent and 30 per cent should be applicable to annual income range of above Rs 3 lakh and up to Rs 10 lakh, above Rs 10 lakh and up to Rs 20 lakh and above Rs 20 lakh, respectively. If implemented, this will help alleviate the common man’s sufferings to some extent.

2. Reduction in tax rates

Salaried individuals are always at a loss when it comes to tax rates since they end up paying high amount of taxes when they fall into high salary brackets. Currently anyone who earns more than Rs. 10 lakh per annum pays 30% tax on the amount exceeding Rs. 10 lakh. Thus, he has to forgo a large portion of his income in taxes. Hence, apart from revision in tax slabs, change in tax rates would always be a welcome move.

“The IDS scheme of the government launched last year is expected to add a lot of tax revenues to the government coffers with almost Rs. 75,000 crore declared as black money. Considering a tax rate of 45%, almost Rs. 35,000 will be collected as taxes. These revenues are expected to help the government reduce the tax rates in the coming FY,” informs Vaibhav Sankla, Director, H&R Block India.

3. Higher deduction for interest paid on housing loan

Housing and the real estate sector are facing a lot of hardship. The recent media reports indicate that sales have declined substantially and the sentiment is quite low. It is a fact that the real estate sector is one of the key growth engines for a developing economy like India. It provides large-scale employment to unskilled and semi-skilled workers in the country, which is a need of the hour, to boost employment opportunities for a large scale population. This sector also impacts a few of the critical sectors like cement, steel, logistics etc., which in turn are important for the overall growth of the GDP.

Also, “keeping in view the government’s agenda of providing housing for all, it is imperative that some tax concessions are provided in the Budget. One such option could be to increase the tax deduction for interest paid on housing loan from Rs 2 lakh to Rs 3 lakh. This will also provide an immediate boost to the banking services sector, which is flush with funds post demonetization and looking at avenues to lend money to the masses,” says Vasal.

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Some tax experts also believe that people having a single home need to be allowed to deduct the entire amount paid as interest on home loan. Vaibhav Sankla, for instance, says that currently the home loan interest deduction is capped at Rs. 2 lakh per annum for self-occupied house property and deduction of actual interest paid is allowed for a second home that is given on rent or is deemed rented. However, “nowadays buying a second home is not very common owing to high property prices. In such cases, home owners possessing a single home need to be allowed to deduct the entire amount paid as interest on home loan. This would be a welcome relief for salaried individuals since they do not have much scope for tax saving and moreover this is an expense-based deduction,” says Sankla.

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4. Increase in deduction for insurance premium

The deduction under 80D is currently capped at Rs. 25,000 for self, spouse and dependent children. An additional deduction of Rs. 25,000 is available for parents and Rs. 30,000 if they are senior citizen parents. Hence the total deduction available under this section can go up to Rs. 55,000. A deduction for preventive medical expenses is also available up to Rs. 5,000 spent as a part of the overall deduction.

A deduction for the actual expenses made in this regard on medical insurance premiums will be a welcome move since insurance premiums are very high, especially when it comes to parents. The cap of Rs. 5,000 on preventive health check-up expenses should also be removed. It will help salaried individuals to save huge amounts in taxes.

5. Increase in deduction for education and childcare expenses

Childcare nowadays has become very expensive for parents, especially for those staying in metro cities. The maximum deduction for tuition fees permitted under Section 80C is Rs 1.5 lakh per financial year, with deductions eligible only for two children per assessee. Tuition fees generally constitute a very small portion of the entire education fees for the year. This deduction should be extended to other portions of the fees as well.

“Childcare in big cities also calls for daycare expenses, especially for working parents. The expenses many a time run into more than Rs 1-2 lakh per annum. These expenses should also form a part of deductions under Section 80C. This will provide another expense-based deduction to individuals and be a great move towards providing a deduction aimed at working parents,” says Sankla.

6. Deduction for rent paid where no HRA is paid by the organization

Generally, organisations pay HRA to employees in order to ease the burden of rent and there is an exemption available under the tax laws on HRA. However, there are instances when organisations do not include HRA in the salary components.

When HRA is not paid by the organization, salaried individuals are being allowed a deduction of Rs. 5,000 per month under Section 80GG from FY2016-17. This deduction should be increased to at least Rs. 10,000 for metro cities. This is because rent for a decent accommodation in metro cities has risen to this level and there is a need to increase the deduction so that salaried individuals get the benefit of this deduction.

7. Standard Deduction

There are many deductions/ exemptions like medical reimbursement, conveyable allowance, meal allowances etc. Employees actually incur much more cost and obtain very little tax benefit. To highlight, a family of four members will incur on an average, say, Rs 50,000 plus on general medical ailments. And if the family has senior/ailing households, then this expenditure for general hospital/doctor visits and medicines may be much higher. Therefore, there is need to take a re-look at all such benefits and increase them substantially in line with the current economic reality. Same is the case with other tax benefits like travel allowance etc. Keeping this in view, there is need for a special tax benefit like the erstwhile standard deduction to be introduced.

  1. A
    Akansha Sharma
    Feb 11, 2017 at 5:03 am
    The Budget has proposed to reduce income tax rate from 10 per cent to 5 per cent for people having income between Rs 2.5 lakh to Rs 5 lakh. To much joy of tax payers in the lower brackets of income tax, Finance Minister Arun Jaitley has relaxed the chargeable rates. Personal income tax in Rs 2.5 lakh - 5 lakh bracket has been reduced to 5 per cent from 10 per cent. Mentioned on the Taxguru Website !!!
    Reply
  2. A
    Akansha Sharma
    Feb 11, 2017 at 5:02 am
    The Budget has proposed to reduce income tax rate from 10 per cent to 5 per cent for people having income between Rs 2.5 lakh to Rs 5 lakh. To much joy of tax payers in the lower brackets of income tax, Finance Minister Arun Jaitley has relaxed the chargeable rates. Personal income tax in Rs 2.5 lakh - 5 lakh bracket has been reduced to 5 per cent from 10 per cent. Read here for tax proposal highlights :
    Reply
  3. S
    Sneha Chakraborty
    Feb 9, 2017 at 9:03 pm
    Electronics manufacturing is really a low value add industry, if the core electronic components are not made in India. Since 50 years, India had been adding labels, plastics, and physically putting together a semi knocked down kit as manufacturing. In the late 90's more value addition and volumes began, but semi conductor component level manufacture never took off. As long as this does not happen, India will not be adding value. The solution is not in forcing PCB potion here by way of component level embly from a completely knocked down kit in India. True capacity for manufacturing lies in making large and very large scale integrated semiconductors and exporting them as such to industries that need them elsewhere. This will involve capital intensiveness, and not generate much employment. But t would be a strategic need for growth in a sector that will be here for a long time.
    Reply
  4. V
    vasudev
    Jan 16, 2017 at 5:47 am
    Even with out the hardship gone through demonetisation the taxes slabs are long due for a decent reduction. The increase of just 50000/- is an eye wash and will not be sufficient considering the cost of index (it is self a farce). In some years there were not even any relief in the past. Considering the revenue it generated the ry cl may be removed from taxing at all or a Lumpsum of Tax of Rs 500/- Per lac of ry at source may be levied without any refund for income in the slab of 2 - 5 lacs, Rs 1000/- per lac for income in the slab of 5-20 lacs. Original Standard deduction of 30 percent may be restored or NSS to be reintroduced.
    Reply
  5. V
    vasudev
    Jan 16, 2017 at 5:56 am
    Even with out the hardship gone through demonetisation the taxes slabs are long due for a decent revision. The increase of just 50000/- is an eye wash and will not be sufficient considering the cost of index (it is self a farce). In some years there were not even any relief in the past. Considering the revenue it generated the ry cl may be removed from taxing at all or a Lumpsum of Tax of Rs 500/- Per lac of ry at source may be levied without any refund for income in the slab of 3 - 5 lacs, Rs 1000/- TDS per lac for income in the slab of 5-20 lacs. Original Standard deduction of 30 percent may be restored or NSS to be reintroduced.
    Reply
  6. R
    Rajesh Menon
    Jan 25, 2017 at 12:45 pm
    High time to revise the savings under section 80c from 1.5 lakh to at least 3 lakhs
    Reply
  7. V
    V Radhakrishnan Viswanthan
    Feb 1, 2017 at 12:39 am
    Basically the excemption limit for tax calculations must be raised to Rs 5.00 lacs minimum for ried and other people. Moreover limit under 80cc savings can also be improved to 2.5 lacs in this budget. these two things will considerably support ried cles.v.radhakrishnan9443574575
    Reply
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