By Aditya Modani
Budget 2019 India: Past five years have seen some bold moves by the Government to increase the taxpayer base, curb tax evasion and make tax administration simpler. It is expected that approach of the Government is not likely to change in the next five years but will surely see more bold steps to steady and grow the economy, boost tax collections and make several digital interventions in administration of taxes. At the same time, the Government s priority to reduce tax burden on middle class taxpayers will also continue as done in the past, wherein the Government had increased the basic exemption limit in 2014, reduced the tax rate to 5% for taxpayers having income upto Rs 500,000, introduced standard deduction of Rs 50,000 and increased the rebate to Rs 12,500.
While the above measures have been done to reduce the tax burden, there are expectations that additional tax benefits will be doled out by the Government to bolster more disposable income in the hands of the taxpayers to increase spending and revival of growth in the economy. Here are some of the changes which may be proposed by the Finance Minister in the Union Budget:
1. Increase in basic exemption limit
Presently, taxpayers whose taxable income is up to Rs 500,000 are not liable to pay tax due to the rebate of Rs 12,500 available to them. It is expected that the basic exemption limit of Rs 250,000 may be increased to Rs 500,000; to provide relief to all taxpayers in Budget 2019.
2. Increase in Chapter VIA deductions
The Chapter VIA deductions which allow taxpayers to claim deduction of specified investments and/or expenditures while computing taxable income was enhanced in 2014. The Finance Minister may enhance the limit of Rs 150,000 to Rs 200,000 to provide impetus to specified investment/ savings.
3. Rationalisation of taxation of National Pension System (NPS)
It is expected that the Finance Minister may propose to rationalise taxation of withdrawal from NPS and make it consistent with taxation rules for other retirement savings options like Employees Provident Fund and Public Provident Fund. This proposal shall also be in-line with the intent of the Government, which approved changes to streamlining of NPS in its cabinet meeting on 6 December 2018.
4. Increase in limit of exempt capital gains from sale of long term equity shares
Until the previous year, long term capital gains earned on sale of equity shares or units of equity oriented funds were exempt from tax. Thereafter effective from fiscal year 2018-19, said gains were taxable at a rate of 10% on gains in excess of Rs 100,000. To attract more investors in the equity markets, it is excepted that the limit of exemption of Rs 100,000 may be increased.
5. Digital transformation
Taking cue from the Interim Budget, it is expected that the Finance Minister will continue to stress on making more digital transformation, which includes processing tax returns through use of technology, use of other digital tools like big data, analytics to collate, interpret and match taxpayer data with other sources and statutory filings.
While there are always expectations prior to Union Budget by the common man, the Government must do a fine act of balancing between those expectations and what is good for the country. With the mandate that this Government enjoys, the expectations of the common man have gone up and it would be worth a watch to see how many of these expectations are fulfilled.
(Aditya Modani is Tax Director, People Advisory Services, EY. Views expressed are personal)