NEW DELHI: The government should realign income rates and slabs in the soon-to-be-announced Union Budget since the current limit has remained unchanged since financial year 2014-15, said consultancy firm KPMG in a recent note on its recommended changes in India’s income tax policy.
For individual taxpayers below 60 years of age, the income tax exemption limit is currently Rs 2.5 lakh p.a. Last year’s Budget provided some relief to taxpayers by allowing them to choose between the existing tax regime and an alternative optional new tax regime. However, the taxpayers aren’t allowed exemptions or deductions in the new taxation regime.
“Hence, with the objective of simplifying this further and enhancing the net disposable income it may be considered whether the basic exemption limit under the existing tax regime can be enhanced to Rs 5 lakh itself. This would also need to be assessed basis the potential number of taxpayers (estimated at 3.5 crore) who may fall out of mandatory tax return filing requirement,” noted Parizad Sirwalla, Partner and Head, Global Mobility Services-Tax, KPMG Assurance and Consulting LLP India.
KPMG also suggested an increase in the standard deduction and a hike in deduction under sector 80C of the I-T Act. In order to keep pace with the ever-rising medical cost (amplified due to the pandemic) and higher fuel costs, the Centre should consider hiking standard deduction from the existing Rs 50,000 to Rs 1 lakh p.a, said Sirwalla.
The limit of Rs 1.5 lakh for 80C deductions has also remained constant for almost half a decade now, the agency noted, adding that the Centre should consider increasing this to Rs 3 lakh p.a. if individuals are encouraged to spend on expenses such as school fees, housing, etc to boost demand.
KPMG also suggested separate deductions for Covid-19 treatments and a relaxation of the deemed Leave Travel (LTC) expenditure deduction which was announced as part of the Covid-19 relief announced by the Centre last summer. Sirwalla said that given the substantial cost involved in Covid-19 treatment, a separate deduction capped upto Rs 1,00,000 or actual treatment cost incurred may be considered to be included in the Budget announcement.
Cost for Covid treatment should be exempt
KPMG said that a seperate deduction should be announced for up to Rs 1 lakh in order to cover the Covid treatment of the taxpayer or their dependents in the upcoming Union Budget