MUMBAI: Taxpayers and investors will be closely listening to every word by Finance Minister Nirmala Sitharaman on budget day, February 1, as even a minor tweak in taxation will have a big impact on their wallets.
They have high hopes from the finance minister and expect to hear favourable announcements. From revising income tax slabs to increasing the limit for various deductions, taxpayers have a long wishlist for the finance minister.
Investors say that many provisions in the personal finance segment need a relook because of persistently high inflation which has dented their purchasing power. Revising the income tax rate, which has not changed in the past few years, is at the top of the wishlist of taxpayers. The tax rate for individuals has not been changed since 2017-18.
Given the high inflation, experts say that reducing the tax rate will be a good idea as it will boost the purchasing power of taxpayers. “To give more purchasing power to individuals and some relief to the employed taxpayers, the highest tax rate of 30% should be reduced to 25% and the threshold limit for the highest tax rate be increased from R10 lakh to R20 lakh.
Therefore, the proposed highest slab rate (including surcharge and cess) can be reduced to 35.62%,” Tapati Ghose, Partner, Deloitte India told TNIE. The tax rates in India are high compared to some neighbouring countries as the highest tax rate in Hong Kong is 17%, while in Singapore it is 22 % and it is 30% in Malaysia.
Raising deduction limit under 80C
Taxpayers and investors are expecting the FM to raise the deduction limit under Section 80C from R1.5 lakh per year to R2.5 lakh per year. Deductions or exemptions permitted under section 80C help taxpayers to bring their taxable income down by up to R1.5 lakh in a financial year.
“There has been no change in the 80C deduction for many years. The present limit of R1.5 lakh was set in Finance Act 2014. Given the inflationary trends, the above limit should be increased to R2.5 lakh. The limit for Standard Deduction under section 16 should be increased from R50,000 to R75,000,” Raj Khosla, Founder and MD of MyMoneyMantra.com, told this newspaper.
Experts believe that the current limit under 80C is low and should be increased. “With the increase in cost of living and inflation, the government should look at increasing the limit under Section 80 C. This will have two-fold benefits, individual taxpayers would be willing to save more and will benefit from a lower tax outgo, thereby increasing disposable income to meet the increase in the price of various commodities,” Ghose added.
Experts say that more incentives should be provided for insurance and mutual fund products. “During the pandemic, we all experienced first-hand or otherwise how essential it is for every individual to have adequate insurance cover for themselves and their family. The government should enforce additional tax benefits on life insurance products, which can be in the form of additional tax deduction and/or reduction of GST on term, pension and health products,” Tarun Rustagi, Chief Financial Officer, Canara HSBC Life Insurance, said.
Relief to homebuyers
The government should also consider giving additional push to the real estate sector. To boost the affordable housing segment, the finance minister can consider additional incentives for home buyers. “Presently, under Section 24b of the Income Tax Act, home buyers can claim a tax deduction of up to R2 lakh on the annual interest paid on housing loan. The expectations will be that in this year’s budget the government will increase the limit to up to R5 lakh,” said Mahesh Shukla CEO & Founder PayMe.
The finance ministry can consider introducing some exemptions for personal loan borrowers like Section 80E of the Income Tax Act provides exemption limit on the interest on only education loans.
“Section 24b of the Income Tax Act allows home buyers to claim a tax deduction of up to R2 lakh on the annual interest paid on housing loan.
The expectation will be that in this year’s budget, the government will increase the limit to up to R5 lakh. The government is also expected to increase the deduction limit for home buyers under Section 80C of the Income Tax Act from R1.5 lakh to at least R3 lakh,” said Rachit Chawla, CEO, Finway.
Boost affordable housing segment
FM can consider additional incentives for home buyers. Section 24b of the I-T Act allows home buyers to claim a tax deduction of up to R2 lakh on the annual interest paid on housing loan. The expectation is to increase the limit to up to R5 lakh in the upcoming budget.