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Budget 2019: Expectations from Union Budget with regards to personal taxation

Budget 2019, Interim Budget, budget expectations, budget expectations 2019, budget expectations 2019 india, income tax slab, section 80C, pre-construction interest, home loan, standard deduction

Like every year, the Budget 2019 is expected to place more money in the hands of consumers by lowering the tax rates, but mostly the governments restrain themselves from announcing path-breaking changes in an Interim Budget. Some of the expectations from the interim Budget 2019 are:

In the Budget 2018, the government introduced a standard deduction of Rs 40,000 to the salaried class, thereby, subsuming medical reimbursements and conveyance allowance. This change was done to simplify the tax administration. On an overall basis, there was no substantial relief to the salaried employees. Salaried employees have to bear the burden of higher taxes as they do not have any avenues of tax planning. The government should consider to enhance the standard deduction to provide reasonable relief to the salaried class.

Rationalization of tax rates is the need of hour. The highest tax rate applicable on individuals should be reduced from 30% to 25%.

Also, the basic exemption limit may be increased from Rs. 2,50,000 to 5,00,000 for individuals. The highest income slab should also be revised from Rs. 10 lakh to Rs 20 lakh to apply maximum rate of tax on individuals.

Many individual tax payers face challenge in claiming deduction of their investments as the limit of Rs. 1,50,000 provided under section 80C of the Income-tax Act, 1961 (Act) gets quickly exhausted. There is a need to revise the threshold specified under section 80C of the Act.

While payment of tuition fees is eligible for a tax deduction u/s 80C, long-term savings for education should also get tax benefits. The scheme can be regulated by SEBI to ensure that the corpus is not used for other goals.

In India, financial decisions are often driven by tax benefits. Term insurance is the best and cheapest form of life insurance, still it is considered as a waste of money by many. If there is an additional deduction for term insurance, lots of taxpayers would be encouraged to buy these plans for a better secured financial future.

Pre-construction interest can be claimed as a deduction in 5 equal instalments after completion of house property. Prima facie this is a good tax benefit. However, practically, most taxpayers lose out on the deduction for pre-construction interest since this amount is included in the overall limit of Rs. 2 lakh fixed for the interest on housing loan deductible in case of self-occupied property. Hence, the deduction for the pre-construction interest should be allowed in the year of payment or a separate limit should be prescribed for the deduction over and above the regular deduction of Rs. 2 lakh per year.

(By Rakesh Nangia, Managing Partner, Nangia Advisors LLP)