As next year budget is just round the corner, everyone is expecting something from Finance Minister but we should understand, he has some limitations due to heavy fiscal deficits.
There are numbers of points which we are expecting from this budget but I would limited my article to points which affecting salaried persons, as they are the most honest person in matter of payment of income tax. It will be great relief for salaried person, if Finance Minister considers following point in current year budget.
Standard Deduction must be back – Till Assessment Year 2005-06, there was standard deduction for salaried employees. In this period of inflation, government must allow standard deduction to salaried employees once again.
Maximum exemption limit must be increased – At present it is Rs 2,00,000 per annum i.e. a person earning more than Rs 16,667 per month has to pay income tax. Looking at the cost of living, running a family in such a small amount is very difficult and government charging income tax from them. Even in DTC, it is recommended to have maximum exemption limit of Rs 3,00,000.
Deduction in Section 80C should be increased – Almost every taxpayer use available maximum Tax benefit under this section (at present Rs 1,00,000) which was set decade ago. Almost all savings and investments are covered under this section. Deduction limit should be increase to Rs 2,00,000 to provide some relief to taxpayer.
Education and Hostel Allowances need to be revised – Exemption limit of education allowance and hostel allowance are Rs 100 and Rs 300 per month respectively. At present these allowances seems as a joke, government either increasing the exemption thresholds limit upwards or simply withdraw these exemption.
Medical Reimbursements – At present exemption limit for reimbursement of medical expenses is Rs 15000 annually and it was set in 1998. Since then medical costs have risen radically and this limit seems to be inadequate in present scenario. It should to be revised.
Transport Allowance – Its exemption limit is Rs 800 pm and it was fixed in 1998. Today in cities, on average an employee spend Rs 1500 pm in commuting between his residence and place of duty. In view of increasing fuel and travelling costs, it should revise upwards to at least Rs 2,000 per month.
Deduction of interest on housing loan should be increased – Everyone has a dream to own a dream home. Those who can’t afford it, purchase it through housing loan. For a self occupied house, deduction limit is Rs 1,50,000 annually which was fixed several years ago. In present time of high interest cost, limits seem outdated and need to be revised.
Restoration of section 80CCF – Reintroduction of Section 80CCF, under which retail investors can claim an additional tax rebate of Rs 20,000 for investments in Infrastructure Bonds. It will not only provide some relief to tax payers but also help infrastructure sector to raise funds at cheaper cost (provided they fulfil RBI Norms).
Definition of Specified Employee – There are many perquisites which are taxable only to specified employees and exempted for non specified employees. But going through definition, I am very sure there is not a single employee (taxpayer) who is non specified. As per definition, Specified Employees means-
ii. Employee being a person who has substantial interest in company.
iii. Employee to whom provision (i) & (ii) do not apply and whose income under head salary including value of benefit or amenities and after deduction u/s16 exceeding Rs. 50000
Look at the point (iii), an employee who is earning more than Rs 50,000 annually is specified employee.
Leave Salary – Leave salary is exempted at retirement to maximum of Rs 3,00,000 and it too was fixed in 1998. Government had revised maximum exempted amount of gratuity to Rs 10,00,000 from Rs 3,50,000, it may revised this limit too.
Free Food – Value of free food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal. Looking at present inflation, it should be Rs 100 per meal.
Interest Free Loan – Interest free/Concessional loan to employees is exempt, where Loan amount does not exceed in aggregate Rs 20,000. It will be good if this limit is revised to atleast Rs 50,000.
Amongst all taxpayer, salaried persons pay their taxes with maximum honesty and Tax Evasion is almost impossible in their cases, so government should give some relief to its loyalist taxpayers. Even if Finance Minister considers 50% of above mention points, 28th February 2013 will be a remarkable day for salaried person.
As I mentioned, due to heavy fiscal deficit, he has limitation, I would like to say, agricultural income is exempt in India but is it justifiable that a rich farmer who has Bungalow, SUVs etc does not pay Income Tax but a salaried person who earns just Rs 20,000 pm and reach his office going through all the torture of public transport, pay income tax?
Lastly I want to draw attention on this point,
On budget day most of us are more worried about new exemption limit of income tax than new tax rate of indirect taxes (Excise Duty, Custom Duty, and Service Tax). Reason may be that we know how much income tax we have to pay but in indirect taxes we don’t know how much tax we have to pay although we pay much more amount as indirect taxes than income tax annually. Even a percentage increase in rate of excise duty or service tax affects our budget daily than Rs 20,000 or Rs 50,000 increase in basic exemption limit of income tax.
On a roughly estimate, only 3.5 % of our population pays income tax whereas every Indian pays indirect taxes even a beggar. Yes I am saying even beggar pays taxes, for example when a beggar purchases a bidi/cigarette, he pays excise duty, sales tax on it.
So, although my heart is with salaried people but I wish Finance Minister does increase rate of Excise Duty or Service Tax in current budget as it will affect all of us (including salaried people) throughout 365 days of next year. Lets hopes for the best.
CMA Arif Farooqui