1. How budget 2017 can ease pain of demonetisation via income tax sops

How budget 2017 can ease pain of demonetisation via income tax sops

WHILE the administrative machinery of the government is in full force and working overtime to bring tax evaders to book, an important side effect of demonetisation which cannot be overlooked is some hardship caused to honest taxpayers.

By: | Updated: January 17, 2017 12:19 PM
tax saving, tax slab, tax bracket To soothe the pain, the forthcoming Budget 2017 looks like the ideal platform for the government to step in and introduce measures which can seem an encouragement to citizens who have stood by it in bearing the aftermath of demonetisation.

WHILE the administrative machinery of the government is in full force and working overtime to bring tax evaders to book, an important side effect of demonetisation which cannot be overlooked is some hardship caused to honest taxpayers.

To soothe the pain, the forthcoming Budget 2017 looks like the ideal platform for the government to step in and introduce measures which can seem an encouragement to citizens who have stood by it in bearing the aftermath of demonetisation. The government also has to look at measures to incentivise disclosure and reporting processes so that people are encouraged to bring the money into the system and there are no attempts made to get away with non-reporting.

WATCH VIDEO | Here’s How Budget 2017 Can Ease Pain Of Demonetisation

A number of direct tax sops for individuals can be looked at by the government.Increase in tax exemption ceiling from R2.5 lakh to R4 lakh. This would give the common people more income for consumption which would help boost demand that seems to be under pressure after demonetisation.

The increase in tax exemption ceiling can be coupled with a change at the point at which 30% tax rate kicks in, which may be increased from R10 lakh to R15-20 lakh. Further, there can be reduction in direct tax rates from 35.53% to around 28% for taxpayers having income exceeding R1 crore.

A higher tax exemption slab and a reduced tax rate may encourage more people to file their tax returns which is important—considering that less than 3% of the population files income tax returns in India.

Incentives for digital payments can be included as there have been serious efforts by the government to encourage people to move towards a cashless economy ever since the launch of the demonetisation exercise.

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Following this, in Budget 2017, the government may announce a string of measures to take India on the path of a cashless economy by giving incentives to merchants for promoting use of plastic money and income tax benefits could also be offered to those making payments electronically.

Section 80C has a maximum limit of R1.50 lakh and most of the investments come under this bracket. The finance minister may revisit this and increase the limit up to R2-3 lakh. This would also encourage individuals to save more and contribute towards the economy.

The Budget could look at easing the compliance burden on individual assessees by moving most processes online. The objective will be to further cut out the physical interface between the taxpayer and the department. This may have to be balanced by the requirement of more disclosures in the income tax return forms.

The common man is expecting a simple and positive outcome on the tax front in the Budget to compensate the inconvenience caused by demonetisation.

The writer is tax partner, EY India. Inputs from Vaibhav Kulkarni, senior tax professional, EY.

Views expressed are personal

  1. J
    J.venkatarao
    Jan 17, 2017 at 12:52 pm
    There may not be any change in the exemption limit or changes in slab rates in this year budget. There may however be an increase in the tax rebate from 5,000 to 10,000/-.
    Reply
    1. G
      Guru
      Jan 17, 2017 at 2:10 am
      After budget , I will read again your post.
      Reply
      1. J
        Jignesh mehta
        Jan 17, 2017 at 5:23 am
        If done, will be a right move on the government's part. In addition to this govt. must make sure that maximum people come under tax net, who are now avoiding to do so by doing all tractions in cash. It's not only the existing Tax payers who are evading tax on certain income of theirs, rather the number of such people who are avoiding tax inspite of taxable income, are much larger, they should be targeted and automatically the tax collection will increase. The old theory of putting the burden on existing and honest tax payers and not targeting to widen the tax payers base should be done away with. This applies to other areas also like electricity, the Discom's in Delhi are doing so by putting pressure on honest payers by asking for rate increase or indulging in malpractice such as fast meters and not trying to stop theft, which will automatically reduce their losses and give relief to honest consumers, but no they look for easy path by targeting the honest and the consumers are helpless as one can not do without electricity. It's high time govt. put a stop to such practice or else the honest people in the Country will loose faith in the government and the system and live like helpless people, dejected. I know of people who regret to be living in this country but are helpless as they have their roots here.
        Reply

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