What are budget expectations on the personal taxation front?

The government decision to cut corporate tax rates aggressively in Sep-19; built huge investor expectations. With an economic slowdown, there is a sharp demand for more tax breaks. Here are five things the government can do in the current context to reduce personal taxes and boost demand.

Rationalize tax slabs

The Budget 2019 had made incomes up to Rs.5 lakhs tax free but this benefit is not available for individuals earning marginally above that limit. Instead of offering a rebate, which is complicated, the government can simplify and make incomes up to Rs.5 lakhs totally tax exempt. The government must also look at an Asian style model where the peak rate of tax is limited to 10% up to an income level of Rs.20 lakhs. This could be a huge consumption boost for the economy and the equity markets.

Enhance Section 80C limits

The Section 80C limit has stayed at around Rs.1.50 lakhs for a very long time. The eligible investments have increased but the limits have not kept pace. The government must look to right away expand the limit to Rs.3 lakhs and the NPS can be integrated into this overall limit. That simplifies and also gives people more flexibility. Today, middle income earners are left with little to benefit after their PF, insurance and tuition fees of children are factored in.

Make home benefits realistic 

The Section 24 limit for home loans was expanded to Rs.2 lakhs but it is still too inadequate if you consider the cost of apartments in even the second rung cities in India. The government must look to increase this limit in a big way to around Rs.4 lakhs so that it can be more meaningful for mid range apartments in most of the towns and cities. That could also give a big boost to housing demand; normally a demand leader.

Dynamic standard deduction

The government must, in this budget, look to move towards a dynamic standard deduction. While the flat deduction of Rs.50,000 is a good start, it should be pegged to the inflation rate so that the standard deduction automatically goes up as part of a fixed formula. This will ensure that the mean standard of living can be maintained as the loss in rupee value gets partially, if not wholly, compensated.

Make the tax process simpler

In the last few years, we have seen a substantial increase in number of returns without commensurate growth in tax revenues. Ideally, all incomes up to Rs.20 lakhs should be limited to a single-page filing. This will go a long way in reducing the administrative burden and also allow the CBDT to focus on the larger tax payers!