At this time of the year, salaried individuals start looking forward to the Union Budget to find out what the government has in store for the common man. Finance Minister Nirmala Sitharaman would present the Union Budget 2020-21 on February 1 and is currently deliberating upon the contents of her announcements with corporate leaders, economists and team.
With a decline in consumption and slowing of the economy, all eyes will be on the government as people expect consumer-centric steps to boost sentiment and put more income in their hands.
Just the way government took some steps recently to re-energise the corporate sector, the salaried individual also needs some measures to boost their income. The government recently slashed the corporate tax rate, which is expected to have a positive effect on profits. At the same time, consumption demand needs to increase as that it is the most important factor to sustain a business. Consumption will only increase with a rise in income and when people have more spending power.
Here are a few ideas for the government to include in the budget to boost the sentiments of the taxpayer and increase their income eventually.
Revise The Exemption Limits
The interim budget and the Union Budget immediately after the general elections last year didn’t give any relief to the salaried class on the taxation front. Although the people are expecting some tax relief measures, it remains to be seen whether the government can pull it off amid pressure on tax revenue due to corporate rate cut and lower GST collections.
As per income tax slabs, a taxpayer below 60 years of age and earning a net income of up to Rs. 5 lakh pays zero tax while an individual with an income of Rs. 5 lakh to Rs. 10 lakh is taxed at 20%, and an individual with income over Rs. 10 lakh attracts 30% tax. These tax slabs should be reconsidered by the government during this year’s budget and revised upwards to give more income in the hands of the people to raise savings. The rising inflation makes a perfect case for the government to increase the slabs. Also, the 30% slab has been stationary at Rs. 10 lakh since 2012-13, and it’s time it was revised to Rs. 20 lakh, in tandem with increasing urban costs of living.
Take a look at the income tax slab for individual taxpayers and HUF (less than 60 years old) (both men and women)
Income up to Rs.2.5 lakh*
Income from Rs. 2.5 lakh-Rs. 5 lakh
Income from Rs. 5 lakh – Rs. 10 lakh
Income more than Rs.10 lakh
Surcharge: 10% of income tax, where total income is between Rs. 50 lakh and Rs. 1 crore. 15% of income tax, where total income exceeds Rs. 1 crore.
Cess: 4% on total of income tax
* Income up to Rs. 250,000 is exempt from tax if you are less than 60 years old.
Steps That Can Increase Saving
Besides the tax slabs change, the government can also consider taking steps that can increase saving and investments. Taxpayers should be given more reason to save money for children’s education, retirement needs and much more. This can be done by raising the exemption limit under Section 80C. The current income tax law allows a deduction for investment amount up to Rs. 1.5 lakh under Section 80C. It would encourage people to save more if this exemption limit can be increased. With the cost of education going north, many taxpayers want the government to introduce a separate deduction for education expenses that can provide them additional tax benefits beyond Rs 1.5 lakh limit of Section 80C.
Increased Tax Benefits For Life Insurance
Despite being one of the most important aspects of personal finance, life insurance has still not gained much popularity amongst many. Life insurance is an important requirement as it works as an income replacement tool for the insured person’s family in the event of his/her early demise. It provides much-needed financial assurance to the family of the insured. Hence, insurance should not be bought for mere tax-saving; it should be taken for the financial protection of your loved ones. The government, however, can help increase its popularity by providing additional and attractive tax benefits.
Tax Benefits For Home Loans
The government during last year’s budget gave an additional tax deduction benefit of up to Rs. 1.5 lakh for first-time homeowners who bought a property of value up to Rs. 45 lakh under a new Section 80EEA. This was, however, meant for first-time homebuyers who bought a property in Financial Year 2019-20. This year the government should consider providing tax benefits to a broader group of homebuyers. An increase in tax deduction limit for home loans from Rs. 2 lakhs to Rs.4 lakh will help consumers save more and reduce their tax burden, especially in metros and Tier 1 cities where the costs of property ownership is high.
Extend NPS Benefits
The government can announce steps that can make retirement smooth for many. Despite early retirement being a trending subject in the country, not many Indians invest in instruments like the National Pension Scheme (NPS). NPS not only helps build a retirement corpus but also provide tax benefits. Investing in NPS provides tax benefits for your contribution for an amount up to Rs. 1.5 lakh under Section 80CCD(1) in a financial year for both yours and employer’s contribution. But this limit also includes other deductions under Section 80C. To make NPS popular, the government can consider separating NPS deductions from Section 80C ambit and introduce a separate section for it. It can also increase the deduction limit of Rs. 50,000 for self-contribution to Rs.1 lakh in a financial year.
Finally, the idea of the budget this year should be more people-centric, which enables them to utilise their income fruitfully to secure their future.
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