Union Budget 2019: What taxpayers can expect from FM on the personal tax front

Updated: January 24, 2019 1:32:54 PM

The FM has already hinted that the interim Budget 2019 exercise may deviate from the general convention of providing a simple Budget, and would extend help wherever required. This has generated interest among taxpayers.

Budget 2019, Union Budget 2019, interim budget 2019, income tax, taxpayers expectations from budget 2019, finance minister, Modi government, income tax exemption limit, income tax slab, Budget 2019: Last year, there was no relief in the tax slabs or tax rates for individual taxpayers while the year before, the government reduced the tax rate to 5 per cent for the lowest slab (Rs 2.5 lakh to Rs 5 lakh).

With the general elections round the corner, the interim Budget 2019 will be the last Budget for the current government, making it an uphill task to manage the delicate balance between taxpayer expectations and of not irking the Election Commission.

The Finance Minister has already hinted that the interim Budget exercise may deviate from the general convention of providing a simple Budget, and would extend help wherever required. This has generated interest among taxpayers who expect positive measures in the forthcoming Budget. Some things that top the list are:

Increase in the exemption threshold

Last year, there was no relief in the tax slabs or tax rates for individual taxpayers while the year before, the government reduced the tax rate to 5 per cent for the lowest slab (Rs 2.5 lakh to Rs 5 lakh). It, however, did not revisit the tax slabs. While the taxpayer expects the exemption threshold to be increased, the government may not have much flexibility considering that it intends to widen the tax base.

Increase in standard deduction

Last year, the government revived the standard deduction for the salaried class at Rs 40,000 per annum. However, the exemption being provided for conveyance allowance and medical reimbursements were rolled back, which resulted in minimal benefits to taxpayers. This year, taxpayers expect that the government would increase the amount of standard deduction to at least Rs 75,000 per annum.

Exemption for leave travel concession is available for two calendar years in a block of four calendar years. The government should replace the concept of calendar year with financial year (April–March) in line with other provisions of the Income Tax law. Further exemption should be made available in respect of at least one journey in each financial year.

Increase deduction limit

Enhancing the limit for investment-related exemptions (80C), the current limit of Rs 1.5 lakh encompasses saving instruments (FD and PPFs), life coverage, as well as expenditure on housing loan repayment and tuition fees. The focus on encouraging savings and investments should be enhanced. This may be achieved by increasing the limit to, say, Rs 2.5 lakh, which would cover investment avenues. A separate limit can be carved out for expense-related deductions.

Incentivise upskilling

An individual may have to enroll for some courses to upskill, considering dynamic changes in job requirements that seek specialised skill sets. However, as of now, there is no specific deduction available for such individuals. Hence, a separate deduction threshold should be set if an individual enrolls for his skill development course with restrictions put in place to avoid any abuse of the benefit.

Enhanced deduction for health insurance premium of Rs 25,000 (non-senior citizens) is available for individuals towards health insurance premium and payment on comprehensive medical check-up. However, with rising medical costs, a higher deduction limit of Rs 50,000 could likely be required, to ensure adequate coverage for individual taxpayers.

Housing sector

The Finance Act 2017 restricted the loss from house property, which could be set off against other income, to Rs 2 lakh. House property loss in excess of Rs 2 lakh has to be carried forward, and adjusted against the rental income of future years. Given the increasing cost of property and the rate at which loans are availed, the current limit of deduction for Rs 2 lakh is insufficient and should be increased to allow taxpayers to set off a larger part of the house property loss against other income. As per well-established canons of taxation, income tax is levied on any income actually earned. This notion, however, doesn’t hold good for taxability of house property for ‘Deemed to be let out property’, where tax is imposed on notional income. Hence, deemed income concept should be removed as it taxes income which has not been earned.

Investment in Infrastructure bonds

With the government’s ‘Make in India’ campaign and with the thrust on infrastructure, the deduction available on investment in infrastructure bonds under section 80CCF of the Income Tax Act needs to be restored with a limit of Rs 50,000. The government is expected to take measures to reboot growth and provide tax relief to those who need it the most, while ensuring fiscal prudence.

The task force appointed by the government on the direct tax code (DTC) is expected to submit its report by 28 February. The new government would consider the report while presenting the full-year Budget. Considering the above, there are minimal chances of any large changes in the interim budget. However, one has to wait and see how the Finance Minister meets the expectations of individual taxpayers.

(By Aarti Raote, Partner, Deloitte India, and Vijay Bharech, senior manager with Deloitte Haskins and Sells LLP)

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