The budget session 2018-19 is set to commence on January 29, 2018, and the Union budget shall be presented on February 1, 2018. Finance minister Arun Jaitley will present his last full budget of the National Democratic Alliance government, for next year shall be an interim budget. The government is likely to provide major tax benefits for the individuals to spread positive sentiments.
A few provisions of the Income Tax Act are outdated and there is a need to review them. As those provisions were introduced a couple of years or decades back, there is an urgent need to upgrade these outdated provisions. Here is a list of recommendations for the Central Board of Direct Taxes in respect of personal taxation issues.
LTA benefits for foreign travels
Currently, an employee can claim exemption for the leave travel allowance (LTA) granted to him by his employer for the expenditure on vacations anywhere in India. The intent behind this exemption was to promote Indian tourism but it is not in pari materia with the current scenario, as travelling to some overseas destinations is cheaper than visiting tourist destinations in India. Therefore, it is recommended that the exemption should be allowed for both the Indian destinations and foreign travels.
Increase in limit of medical reimbursements
In 1999, the government introduced a special deduction of Rs 15,000 for expenses reimbursed by employer in relation to medical treatment. The amount of reimbursement of medical expenses obtained is chargeable to tax in his hands if such reimbursements exceed Rs 15,000 in a year. In the last 18 years, cost of medical treatments has increased manifold. It is recommended that the exemption limit should be raised to a minimum of Rs 50,000, considering the inflation in cost of medical treatment in India.
Outdated limits for salaried employees need revision
There are several allowances which are exempt from tax up to certain threshold limits. These threshold limits are too meager against current backdrop, inter-alia, children-education allowance is exempt up to Rs 100 per month, hostel expenditure is exempt up to Rs 300 per month, etc. In the last decade, the cost of education, accommodation services, etc, have been increased significantly. Thus, it is the need of the hour that the threshold limits of various allowances be increased.
HRA–Add more cities to metropolitan’s umbrella
An exemption is provided under the Income tax Act for house rent allowance (HRA) received by an employee if he pays rent for his residential accommodation. The employee can claim higher deductions for HRA if the employee is living in any of the four metropolitan cities—Mumbai, Delhi, Kolkata and Chennai. The rental charges for accommodation facilities or houses in cities like Bengaluru or Hyderabad are equal to or higher than charges in Delhi or Kolkata. In the last few decades, rental charges in some Indian cities have also increased manifold. Therefore, there should be an inclusion of other cities in this category like, Bengaluru, Hyderabad, Pune, Ahmedabad, Jaipur, Noida, Gurgaon, etc.
Need to increase time period to buy new house for Section 54 or 54F exemptions
The exemption can be claimed for the long-term capital gain if person re-invests the amount to buy or construct a new residential house. To claim this exemption, Section 54 and 54F allow one year before or two years after the date of transfer of the old property, in case a new property is to be purchased and three years if the new property is to be constructed. To regulate the real estate sector, the Real Estate Regulatory Authority (RERA) Act was introduced. At present, there is no maximum time limit provided by the RERA for the completion of construction of the property, yet it provides that the builders deliver the property within time limit agreed upon between the parties.
Generally, for a big project or township, developers take minimum five years before handing over the possession of the property to the buyers. If a buyer gets the possession of a new house after three years, he is not allowed to claim section 54/54F exemption. Suitable amendment is required to allow section 54/54F exemptions to genuine taxpayers, who invest in projects developed by a builder registered under RERA.
Raise maximum threshold of deduction under section 80C
Section 80C allows a deduction of up to Rs 1,50,000 for making investment in the life insurance policy, repayment of housing loan, PPF, children’s education expenses and so on. Various investment schemes have been losing the sheen. The government should raise this limit to Rs 2,50,000 to allow benefits to individuals and to channelise the maximum investment to revive the economic growth.
Standard deduction for salaried employees Earlier, an additional deduction, ie, standard deduction, was available explicitly against the salary income. This deduction was withdrawn from the assessment year 2006-07. There are various expenses that an employee incurs during the course of his employment for which no deduction is available to him.
However, a taxpayer who is carrying on a business can claim deductions for the similar expenses. For example, an employee using his personal car for commuting between office and house gets no deduction for the running and maintenance expenses of the car. The maximum number of returns has been filed in Form ITR 1, which is used by salaried and pensioners as per return filing statistics.
The salaried employees are always considered as one of the major contributors in direct taxes collection. The Centre should allow some additional benefits to the salaried employees by reintroducing the standard.
With inputs from Naveen Wadhwa, DGM, Taxmann