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What taxpayers expect from Budget 2018 on personal taxation

Pranay Bhatia, International Liaison Partner |

25 January 2018

With Budget 2018 just around the corner, tax experts hope Finance Minister Arun Jaitley will provide the much-needed succour to common men whose spending power bore the brunt of GST and demonetisation in close succession.

Since this year's Budget is the last full one for the government ahead of the general elections in 2019, experts believe a favourable revisioning in income tax slabs, relaxation in Section 80C limit and a push in medical insurance for senior citizens and others is required to offer more disposable income in hands of common men to revive the economic growth. 

Revisiting overcrowded Section 80C

In 2014, the government had last revised the exemption limit under Section 80C of the Income Tax Act, 1961 from Rs 1 lakh to Rs 1.5 lakh. There has been just 50% revision under this section in the last 14 years. The last revision before 2014 was made in 2003. Besides, the section is overcrowded with a slew of financial products from fixed deposits (FDs), equity-linked savings scheme (ELSS), LIC, PPF, and Mediclaim etc available under it.  

"Section 80C limit can be increased from Rs 1.5 lakh to Rs 2 lakh to provide thrust to savings and also on account of the inflation. This can bring some relief for lower income groups. Also, to encourage investment into the housing sector and for ensuring housing for all, it may be expected that a separate section be carved out to provide deduction for the principal repayment on housing loan," said Suresh Surana, Founder, RSM Astute Consulting Group.

Revision in tax slabs 

In Budget 2017, FM Jaitley had left the tax slabs unchanged but did give a marginal relief to small tax payers by reducing the rate from 10 per cent to 5 per cent for individuals having annual income between Rs 2.5 lakh to Rs 5 lakh.

Pranay Bhatia, Partner – Tax & Regulatory Services, BDO India said believes the middle class can hope for a relief in Budget 2018 as the FinMin is contemplating to hike the personal income-tax exemption from the present Rs 2.5 lakhs to atleast Rs 3 lakhs.

Surana of RSM Astute Consulting Group also noted that the personal tax rate structure is expected to be liberalised.

The basic exemption limit of Rs 2,50,000 needs to be increased to Rs 3 lakh keeping in view the inflation and the fact that the same has not been increased for the past 3 years. The upper limit for the tax slab of 5 per cent applicable for the taxable income ranging from Rs 2.5 lakh to Rs 5 lakh is expected to be increased from Rs 5 lakh to Rs 6 lakh. 

"Similarly, the upper limit for the tax slab of 20% applicable for the taxable income ranging from Rs 5 lakh to Rs 10 lakh is expected to be increased from Rs 10 lakh to Rs 12 lakh. To ensure equitable personal tax regime, there may not be any reduction in the higher income tax slabs where the rates are 30.9 per cent, 33.99 per cent and 35.535 per cent, and are applicable for taxable income ranging up to Rs 50 lakh, between Rs 50 lakh and Rs 1 crore; and for income exceeding Rs 1 crore respectively," he added.

Medical insurance

In 1999, the government had introduced a special deduction of Rs 15,000 towards expenses reimbursed by an employer in relation to medical expenses. However, in the past 18 years, the cost of medical treatment has witnessed a manifold increase. "It is expected that this exemption limit under Section 80D of the Act could be raised from the existing limit of Rs 25,000," said Bhatia of BDO India.

Besides, medical rebate of Rs 30,000 under Section 80D for senior citizens needs to be revisited too.

Extending market-linked savings limit 

Neeraj Taneja- Regional Business Head, YES Bank believes the government may look into extending the limit for market-based tax savings schemes such as ELSS.

"The stock market is expected to see better growth in future. Therefore, the government may provide additional limit in equity-linked schemes so that more money could flow into the market. Separately increasing the cap on ELSS could be a good option," he said.

Source: Zee Business