Budget 2020-21: To ensure affordability and accessibility to medical treatment, the deduction under section 80D should be increased to Rs 50,000 while it is expected that tax benefit under section 80C should be increased to Rs 250,000.
- Gaurav Mohan
Budget 2020 India: The countdown for the Union Budget 2020 has begun and from a taxpayer to a tax expert, everyone has quite a few expectations from the Finance Minister. This year the budget shall surely be full of excitement because of many reasons. After a cut in the corporate tax rate from 30% to 25% & 15%, it is now anticipated to provide similar relief on personal taxes to the individuals as well. The aim of the government behind the reduction in the corporate rate was to arrest growth slowdown and boost investments in India. However, in order to promote consumption, it is equally essential that the disposable income of people must be improved. But this would be a challenging task as the government has just slashed the corporate tax rates and projected tax forego is more than INR 1.45 lakh crores due to such change. Still, individual taxpayers are hoping for some beneficial tax reforms in the upcoming Budget 2020 to restitute economic sentiment.
Look at the income threshold limits on which tax is levied for individuals would show that the last change was made in 2014 when the Modi government presented its first Union budget. Since then, there has not been any major change in these limits albeit some additional benefits and sops were given in the following years. However, the highest tax rate applicable to an individual being raised to 42.74% in July 2019 when the full budget for FY 2019-20 was presented.
The basic exemption limit is expected to be increased to INR 5 lakh for an individual taxpayer from the current INR 2.5 lakh which is projected to spur the demand for goods and services. The last such increase was made almost 5 years back when the threshold was increased from INR 200,000 to INR 250,000 in the financial year 2014-15.
Progressive slab rates also need to be rationalised and individuals are expecting to pay 10% tax if they are earning between Rs 5-Rs 10 lakh, while those making between Rs 10-20 lakh shall be taxed at 20%. The highest rate for taxation shall be 30 % applicable for taxpayers earning more than INR 20 lakh. The super-rich surcharge shall be restricted to 10% for individuals earning beyond Rs 1 crore annually.
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In the upcoming Budget, standard deduction from salary may be made more progressive like the tax slabs, to pass on an additional benefit to the salaried class. In any case, base standard deduction shall be also increased from INR 50,000 to INR 60,000 in lieu of specific allowances offered to salaried individuals. The inflationary increase is also expected in allowances and deductions available to the salaried professionals. Children’s education allowance and hostel allowance give a meager tax break of only INR 400 per month for a maximum of two children and it has remained the same over the years. This is the right to increase this allowance to INR 5000 per month for a maximum of two children.
To ensure affordability and accessibility to medical treatment for all classes of patients and in view of the ever-rising inflation levels, it is time that the deduction towards such expenditure under section 80D of the Act should be increased from the current INR 25,000 to Rs 50,000. It is expected that the amount of tax benefit available under section 80C should be increased to INR 250,000, as this has not been hiked since Budget 2014.
Exemption on long-term capital gains from the sale of equity and equity-oriented mutual funds also needs a relook. Expectations are that the current limit of exemption would be increased from INR 100,000 to INR 200,000.
Aspirations of the common man are soaring high following repeated announcements by the Hon’ble FM to provide relief to individual taxpayers. Hence, it is a matter of time before it is known whether expectations of the common man will be met or not in the upcoming Budget. Finance Minister needs to strike a balance between wishes of a common man and resources available at hand in light of the fiscal deficit.
Gaurav Mohan is CEO of AMRG & Associates. Views expressed are the author’s personal.