The individual taxpayer awaits the Budget day with bated breath, hoping for relief on many a front
WITH just a few days to go for the Budget, expectations are high for some reform-oriented steps from the government. Be it retail or institutional investors, or captains of the industry, all eyes are on finance minister Arun Jaitley as he presents his first full-year Budget.
Taxpayers are obviously hoping for some more money in their pocket. The basic tax-exemption limit may be raised to R3 lakh from R2.5
lakh. There’s also an expectation that the tax deduction limit for various saving and investment instruments under Section 80C may be increased to R2 lakh from R1.5 lakh.
Deductions under Section 80C could be further enhanced to boost the savings pattern of individual investors. For instance, investments in bank fixed deposits for a period of five years are eligible for deduction under Section 80C; the same could be extended to a few other selected financial products, thus boosting household savings.
A vast majority of us aspires to have a house of our own. This is where a home loan comes into the picture. Of the equated monthly instalments (EMIs), the principal repaid is eligible for deduction under Section 80C, while the interest amount comes under Section 24, up to a maximum of R2 lakh.
During the initial period of servicing the loan, a significant part of the EMI goes towards the interest component. This limit can be increased from R2 lakh to R2.5 lakh. Further, a better deal for first-time home buyers could be offered. This would boost a number of allied industries, such as steel, cement, wood, glass and the like, apart from generating jobs.
Education loan availed to support higher studies for self, spouse and children is eligible for deduction under Section 80E. The amount of interest paid is also eligible for deduction; moreover, there is no cap on the amount to be deducted.
One can deduct the entire interest amount from the taxable income. However, there is no benefit available on the repayment of principal amount. To motivate prompt repayment, a nominal amount on principal repayment could be made eligible for deduction.
More and more people are finally waking up to the need of health insurance, in the light of rising medical costs. Medical insurance premiums paid for self, spouse, children and dependent parents are eligible for tax deduction under Section 80D. Accordingly, health insurance premium paid for self, spouse and children up to R15,000 is eligible for tax deduction. Another R15,000 is eligible if the premium is paid for dependent parents. If the dependent parents are senior citizens, this amount goes up to R20,000.
Raising these deduction limits inthe forthcoming Budget could be a good idea.
At present, leave salary is exempted on retirement to a maximum of R3 lakh. This limit was fixed way back in 1988. This could be enhanced to
R5 lakh. The same logic holds true for raising exemption on gratuity to Rlakh from R3 lakh.
Value of free food and non-alcohol-based beverages or meal vouchers provided by the employer is exempt from tax for R50 per meal. This should be increased to Rper meal, in the light of rising inflation.
To conclude, the government needs to take some bold measures to raise the confidence of investors. The time to act is now.
* Taxpayers are hoping that the basic exemption limit will be raised to R3 lakh from R2.5 lakh. There’s expectation that the deduction limit for investments will be increased to R2 lakh
* The limit for interest exemption against the EMI component of a home loan can be increased from R2 lakh to R2.5 lakh
* To motivate prompt servicing of education loans, a nominal amount on principal repayment could be made eligible for deduction
* Raising deduction limits for medical insurance could be a good idea
* The value of free food and non-alcohol-based beverages, or meal vouchers, by the employer is exempt from tax for R50 per meal, which should be increased to R100
The writer is associate professor of finance and accounting, IIM Shillong