TOI spoke to tax experts to understand the top 3 ways in which FM Sitharaman can reduce the tax burden on the individual:
Revising income tax slabs & basic exemption limits:
One way experts believe the tax burden on the individual can be brought down is by revising the income tax slabs. For individual taxpayers below 60 years of age, currently the annual income tax exemption limit is Rs 2.5 lakh. This limit has remained the same from FY15.
Parizad Sirwalla, Head, Global Mobility Services, Tax, KPMG in India says it is important to enhance the net disposable income. “Hence it may be considered whether the basic exemption limit under the existing tax regime may be enhanced to Rs 5 lakh p.a,” she says. “This would also need to be balanced and assessed on the basis of the potential number of taxpayers who may consequently then come outside the ambit of mandatory tax return filing requirement,” she tells TOI.
Sonu Iyer of EY India is of the view that tax rates for lower and middle-income slabs can be rationalized given the high inflation and rising cost of living.
“These tax rates under the traditional tax regime have not changed for long. It is suggested to lower the income tax slab rates for individuals with total incomes up to Rs 20 lakh,” the Tax Partner at EY India says.
According to Tapati Ghose, Partner at Deloitte India, it is expected that the highest tax rate of 30% be reduced to 25%. The tax rates for individuals have not been changed since FY 2017-18, apart from the new tax regime, which is subject to onerous conditions.
“To give more purchasing power to individuals and provide some tax relief, it is expected that the highest tax rate of 30% be reduced to 25%, and the threshold limit for the highest tax rate be increased from Rs 10 lakh to Rs 20 lakh,” Ghosh tells TOI. “With this, the highest slab rate (including surcharge and cess) may be reduced to 35.62% from 42.744%,” she adds.
Standard deduction, Section 80C & other exemptions:
Sonu Iyer of EY advocates re-looking Section 80C & deduction for interest paid on home loan for self-occupied house property limits. This will lower the tax burden on the low and middle income category of taxpayers given the fact that cost of basic commodities has increased considerably in the last few years,” she says.
Tapati Ghose of Deloitte says the limit for Section 80C should be increased to Rs 2.5 lakh from the present Rs 1.5 lakh. There should also be a relook at deduction caps for health insurance premium, interest on savings accounts.
The standard deduction limit should be increased from Rs 50,000 to Rs 1 lakh per annum, feels Sirwalla of KPMG. “The benefit of standard deduction may also be made available to taxpayers opting for taxation under the new optional regime as well,” she says.
Sirwalla adds that the government should consider an increase in the limits under Chapter VI A which will incentive savings, expenditure, and long-term investments of individuals.
Incentivising concessional tax regime:
The new concessional tax regime introduced in Budget 2020 has seen fewer takers despite more beneficial tax rates applicable vis-à-vis the traditional tax regime.
According to Iyer of EY, the reason for the lower adoption is that the taxpayer is required to forgo the majority of the exemptions and deductions.
She believes that the new tax regime can be made more attractive by allowing some exemptions. “…such as deduction for the contribution made to provident fund/public provident fund, pension funds etc. or allowing a standard deduction from salary (without itemized deductions),” she tells TOI.