Budget 2022 is approaching, and individual taxpayers are hoping for some respite in light of the dire situation caused by Covid and with inflation rising too.
Apart from exempting senior citizens from submitting ITRs in exceptional circumstances, no meaningful tax relief has been offered to the salaried class in prior years, whether in the form of slab rates or other allowances. Therefore, it is high time to give some much-awaited relief to personal taxpayers and in this regard, some of the expectations of individual taxpayers are as follows:
Rationalize the slab rates for individuals: The Finance Act, 2014 was the last year when the slab rates have been amended from Rs 2 lakh to Rs 2.5 lakh. Since then, the slab rates have remained unchanged for the past seven years, although the cost-inflation index (underlying on inflation) has climbed from 240 to 317. In general, the slab rates should be updated on a regular basis to keep up with inflation. Although the government has increased the rebate u/s 87A from Rs 2500 to Rs 12500 over the period of time, the important aspect to remember is that the said incentive is not available if gross taxable income exceeds Rs 5 lakh even by even a single rupee. As a result, it is critical that the government review the tax structure of slab rates in this budget in order to put it in step with the rising inflation.
So, even though the government would prefer not to change the slab rates in order to broaden the tax base, however, as an alternative, the government may take the following steps to provide some relief to the taxpayer: a) reduce the tax rates for different slabs; b) increase the standard deduction from Rs 50K; c) Increase the rebate u/s 87A and remove the Rs 5 lakh gross total income restriction.
Increase the threshold limit of various allowances viz. education, medical, interest on house loan, etc.: The deduction for education allowance is still Rs.100 per child (up to two children), which is out of sync with current education costs, and thus a firm recommendation backed up by requests from Indian employees is to multiply the allowance exemption limit to multiple times, taking into account the costs of modern-day education.
Given the rapid surge in medical expenditure, particularly corona treatment, the threshold limit for medical expense as well as insurance expense covered u/s 80D needs to be increased.
The investment deduction u/s 80C, which was last updated in the Finance Act of 2014, also needs to be enhanced.
At present, the deduction for interest on housing loans has been restricted to Rs 2 lakhs. The same needs to be increased and this will benefit the real estate as well.
The advance tax threshold limit should be revisited/increased, particularly for individual assessees (from Rs 10,000) to help minimize the interest burden.
Taxability of cryptocurrencies: With over 10 crore cryptocurrency owners, India has now topped the tally in terms of number of investors. Despite this, there is no guidance from the Income Tax Department on the taxability of cryptocurrency. Given the exponential growth seen in India's cryptocurrency market over the last few years, it is expected that the upcoming budget session will shed some light on it and put to rest all the speculations about crypto, whether being treated as an asset or currency and its corresponding tax treatments in the hands of the assessee.
Deduction for house rent allowance (HRA) shall be covered in new tax regime: Usually, HRA is included in every employee's CTC, and the employee is allowed an exemption under section 10(13A) while determining his income under head salary, and the same is a standard practice followed in the Indian corporate sector. Because the majority of salaried people live in rented housing, they are eligible for the HRA exemption. Therefore, the alternative new regime is not feasible because it does not provide HRA exemption, which is crucial for assessees who live on rent. To make the new scheme affordable, it is suggested that exemption for HRA should also be allowed to the taxpayers who also wish to opt for the new regime as it is a basic expenditure that is essential for the employees especially who work in metropolitans and big cities where the cost of living is already high.
Taxability of dividend in hands of resident investor: Currently, a resident individual investor who falls in higher tax brackets are subject to higher tax liability @ 30% {as per Section 56(2)(i)}, whereas, non-resident investors are subject to a reduced tax rate of 20% {as per Section 115A(1)(a)(i)}. So, non-resident investors are benefited more as compared to resident investors. Therefore, it is suggested that the tax rate for resident investors be aligned with that of foreign investors in order to avoid discrimination.
Increase the threshold limit of capital gain bonds u/s 54EC and 54EE: Given the current inflationary conditions in the economy, the maximum limit for an Assessee's investment in the long-term specified asset from the capital gain arising from transfer of capital asset as prescribed u/s 54EC shall be increased from the existing limit of Rs 50 lakh. Additionally, the bond mentioned in Section 54EE of the Finance Act, 2019 are yet to be notified, which can be issued and notified in this budget.
Exemption for treatment of COVID of patients and their families: In recent years, various stimulus packages/reliefs have been issued by the government to assist individuals in dealing with Covid implications. One of such relief measures was that those who get financial assistance from their employers and well-wishers to cover the cost of Covid-19 treatment would be eligible for an income tax exemption. Further, the expenditure incurred by Assessee himself should also get some relief in the form of tax deduction in the forthcoming budget session.
Setoff of loss from house property: Section 71 of the Act provides for setoff of loss arising under head House property from other heads to the extent of Rs. 2,00,000, and in case it doesn’t set off in same year from any other head then such loss is allowed to be carried forward up to succeeding 8 assessment years.
Because, the interest on such loan is usually higher than the rental income while investing in property, whereas due to this limitation the taxpayer is not able to set-off the losses under house property in the year itself and have to pay taxes on remaining taxable income, so it is suggested to increase the threshold limit of Rs 2,00,000 to Rs 5,00,000.
The author is Director, Corporate & International Tax at AMRG & Associates