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Budget 2019: Income tax payers seeking more disposable income in hands

Rakesh Nangia

The government will be presenting its Interim Budget on February 1, 2019. Generally, the government does not introduce major changes while presenting its Budget just before the general elections. However, Interim Budget raises hopes in the minds of the common man that the government would present a taxpayer friendly Budget.

The primary expectation of the common man is larger disposable income after discharging taxes. Thus, the government is expected to strike a fine balance by bringing changes that favours ordinary citizens but at the same time makes fiscal sense. Basically, expectations of the common man that make common sense too!

Increase in the standard deduction
In last year s budget, the government introduced standard deduction of `40,000 to the salaried class and subsumed the 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 burden of higher taxes as they do not have any avenues of tax planning like the business class. The government should consider enhancing the standard deduction to provide reasonable relief to the salaried class.

Rationalisation of tax rates and income slabs

Individuals having total income up to `5 lakh are required to pay tax @ 5%. With increase in total income earned by the individual, the rate of taxation jumps up directly to 20% (for income upto `10 lakh) and 30% (for income beyond `10 lakh). There arises a disparity in taxation for individuals falling in the middle-level income category. It is hoped that the income slab will be increased, else the tax rates be reduced. Basic exemption should be increased from `2.5 lakh to `5 lakh and highest income slab should be revised from `10 lakh to `20 lakh. Else, the government should consider streamlining the tax rate to 10% for income upto `10 lakh and 20% for income beyond `10 lakh.

Deduction under section 80C
Many individual taxpayers face challenge in claiming deduction on their investments as the limit of `1.5 lakh provided under Section 80C gets quickly exhausted. There is a need to revise the threshold specified under Section 80C. Further, conserv- -ative investors tend to buy five-year FD for tax saving where interest rate has come down drastically. Hence, for a better return for investors, investment in the low-risk hybrid funds should be eligible for 80C deduction.

Saving for children s education

Education lays the foundation of a strong economy. While payment of tuition fees is eligible for a tax deduction under Section 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.

Term insurance: Tax deduction
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 separate deduction were provided for term insurance, a lot of taxpayers would be encouraged to buy these plans for a better secured financial future.

Taxpayers already use online portals for tax filings, wherein personal and tax paid information are pre-populated in the tax form. The government can take this a step further by sending pre-populated tax forms to taxpayers with information from their Form 26AS and other financial transactions linked to their Aadhaar and PAN. The taxpayer should have the option of reviewing and modifying the information before filing. This automatically generated tax return should be considered final and filed unless the taxpayer modifies it before the due date. This will serve dual purpose, better return filing ratio for the government and easy tax administration for the taxpayers.

The writer is managing partner,
Nangia Advisors LLP