Given the government’s initiatives to change the lives of the people for the better, one can expect new reforms/ proposals in the upcoming budget.
The year 2016 has just ended and some of the changes brought in by the Government during the year created a lot of anxiety amongst the tax payers. Some of the key changes brought by the Government to uplift the nation’s growth and remove unaccounted money from the economy were increased requirement to quote PAN, Demonetisation, Pradhan Mantri Garib Kaylan Yojna and increased compliance requirements for the taxpayers.
Given the government’s initiatives to change the lives of the people for the better, one can expect new reforms/ proposals in the upcoming budget. Let us look at some of the key personal tax changes that could be expected by the individual taxpayers in the coming financial year.
Re-alignment of tax slabs
There was no change to the tax slabs and rates in 2015-16 and 2016-17. However, the rate of surcharge has been increased from 12% to 15% for taxpayers with an income over Rs 1 crore for 2016-17. One can expect an increase in the tax exemption threshold limit (current limit is Rs 250,000) in the coming budget which could improve the spending power of a common man.
Further, the government may also consider relooking at the current tax slabs to benefit the middle class.
Inflation adjusted tax benefits
In terms of tax benefits, the exemption limit of transportation allowance was increased to Rs 1,600 from Rs 800 per month during 2015-16 given the inflation and increased costs. This was a much awaited and welcome move.
However, there are various other exemption limit for other tax benefits like children education & hostel allowance, reimbursement of medical expenditure which have remain unchanged since long time.
Hence, in the coming year, one can expect that government would enhance some of these limits as inflation based adjustments will be helpful for the taxpayers.
Further, government has also been adopting measures for promoting affordable housing for the common man. Currently, the deduction available on account of interest on house property loan (Self occupied property) is Rs 2,00,000. It can be expected that government may increase the said cap of deduction for interest on housing loan to Rs 300,000.
Also, the proposal to remove the condition of completing the house property construction within a specified period to avail maximum deduction can also be considered.
Increase in limits of tax saving instruments
Given the Government’s encouragement to people for participation towards savings/ investments, one can expect an increase in the deduction limit under section 80C from Rs 1,50,000 to Rs 2,50,000.
Further, the Government may also consider reintroduction of standard deduction and do away with multiple deduction for salary income earners.
Encouragement for additional savings
In order to encourage additional tax savings among the tax payers, the government may consider to incentivise savings by providing the following –
> Increase in the limit of National Pension Scheme under Section 80CCD(1B) from current Rs 50,000;
> Reintroduce section 80CCF which provides for investment in long-term Infrastructure bonds;
> Incentivise savings through a single deduction.
Improved Taxpayer experience
The Government has taken various steps to improve taxpayer experience, like simplifying the ITR forms, two way electronic communication between taxpayer & the tax department and faster processing of income tax returns and refunds.
Further, the government may also consider the following to further improve their experience –
> Collection of investment proofs in soft copy by the employers
> Streamline provisions & provide clarity on Tax Residency Certificate (‘TRC’) – when to obtain/ whom to furnish etc.
> Introduction of certain international tax practices, like tax equalisation, claiming treaty benefit at the time of tax withholdings, joint filings, deductions based on dependents
> More sophisticated technology with respect to tax return filing, assessments and refund process
The Government has been taking measures to transition from a complex to a simpler tax system, creating awareness of the compliance requirements and use of Information technology. While there are lot of speculations on the expectations, one has to wait for the final outcome.
(Authored by Amarpal S. Chadha, Tax Partner & India Mobility leader at EY. Garima Agrawal, senior tax professional, EY also contributed to the article. Views expressed are personal)