Budget 2018: The Modi government’s fifth Union Budget will be presented on February 1. Finance Minister Arun Jaitley will present the BJP-led NDA government’s last full budget before the Lok Sabha 2018. Digitization is creating tremendous opportunities for economies across the globe and India is an example of a country that not only understands this opportunity, but has embraced it. We have digitized several facilities and eased the life of the common man. However, with changing trends and increased cost of living, the upcoming Budget 2018 may consider revisions in the eligible deduction amounts and introduce more digitization features to make compliances easier for taxpayers.
Reduce the paperwork for employers
The tax office has implemented digitization at a rapid pace and made compliance convenient for taxpayers. However, employers have to do massive paperwork to ensure that the bills submitted by employees for claiming tax exemption / deduction conform to the rules. It would be a welcome move if all the expenditure based allowances are scrapped with a standard deduction to a percentage of salary. This would also bring down the time, cost and efforts of employers. This would also avoid the administration cost for tax office as they are not required to inspect if employers maintain adequate documentation before allowing the deduction/exemption. FM Jaitley must look into this in Budget 2018.
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Every individual would have gone through the hassle of understanding the difference between the assessment year and financial year. More so, when asked to pay taxes on their own. The online tax portal mandates Assessment Year selection and a first-time taxpayer is prone to err in this step. Currently, approaching the jurisdictional tax office is the only solution to this. Process of online correction request would do away with this task and save time for the tax officer as well as the tax payers. The Modi governmment may come up something on this issue in Budget 2018.
Easy procedures for non-residents
Electronic means of filing the Income-tax return does not only save paper, time and efforts for the tax payers but also facilitates the tax officer. With the introduction of e-verification through One Time Password (OTP), the tax office has eliminated the paperwork of sending the physical copy of tax return acknowledgement. However, non-residents with no active Indian mobile number will have to follow the paper process. The tax office could consider a Permanent Account Number (PAN)-based e-verification system with multi-factor authentication. A non-resident has to apply for Tax Residency Certificate (TRC) abroad in order to claim the tax treaty benefits. Specific relaxation from this requirement would be welcome for individuals if suitable documentation is available, as they currently incur compliance cost overseas to claim the benefits in India. Budget 2018 will be crucial for the Modi government.
Separate deduction for education expenditure
Cost of education is deductible while computing the taxable income. However, the threshold is fixed for a common pool of expenditure and investments. With increasing cost of education, a separate deduction for education expenditure (like transportation, computer-aided classes, childcare, lodging, infrastructure, mess, special coaching) would provide incremental tax relief to the household. Exemption under Section 10 towards children education and hostel allowance is provided only to the salaried class. Having a blanket exemption in the Union Budget 2018 would benefit the larger mass.
Medical treatment and expenses
Deduction is provided in respect of medical treatment for specified diseases (for self or for dependents) based on the actual expenditure and age. The claim has to be supported by a certificate from the prescribed hospitals. Though the government has eased the procedures involved in obtaining a certificate, the diseases covered under this section and the threshold remain unaltered. For instance, organ transplantation is not covered and the cost of chemotherapy session is higher than the allowed threshold. A separate deduction for non-domiciliary medical expenditure incurred by senior citizens would be a welcome step in Budget 2018. With the expectations that people have on the Union Budget 2018 every year, the government could consider paperless compliance by taxpayers and rationalization of salary provisions for a higher degree of compliance.
Sudhakar Sethuraman is Partner, Deloitte India. Lakshmi Pichaimani is Senior Manager and Divya Sekhar is Assistant Manager with Deloitte Haskins and Sells LLP