The people of India are eagerly awaiting the Budget today with high hopes for tax relief. Below are some of the key expectations

Higher tax breaks The basic exemption limit for individuals and HUF was last increased in FY 2014-15. Considering the rising cost of living, there is expectation that the basic exemption limit will be increased from ₹250,000 to at least ₹300,000.

Further, the age limit prescribed for very senior citizens is now 80 years — this should be brought down to 70 years. Also, the income exemption limit in their case can be increased to ₹700,000 from the ₹500,000 currently.

Similarly, the exemption limit for medical re-imbursement for salaried employees is currently limited to ₹15,000 per annum. To provide genuine relief, the exemption limit for this re-imbursement may should be increased to ₹50,000.

Also, considering the increasing cost of medical treatments , an increase in the deduction limit under Section 80 D (medical insurance premium) from 25,000 to 35,000 seems due.

The deduction of interest on housing loan is currently ₹2 lakh for a self-occupied property. This seems low given high property prices, interest rates and tenure of repayment. There is hope that this limit will be raised.

Section 80C rejig The current deduction under Section 80C of the Income Tax Act includes both investment avenues (such as contribution to provident fund and fixed deposit) and expenditure avenues (such as repayment of the housing loan, tuition fees). This does not incentivise individual taxpayers to make investments beyond the specified limit. To channelise savings into investments, the government should consider the structuring of deduction under Section 80C to allow only investments made during the year.

Also, with the last change made two years back, there is hope that the limit would be increased from ₹1.5 lakh to 2.5 lakh, if not to ₹3 lakh, as was proposed in the Direct Taxes Code.

In addition, a separate section should be carved out to allow deduction for expenditure made during the year (which currently forms part of Section 80C).

The government should also think of re-introducing deduction for investment in infrastructure bonds, especially with focus on infrastructural development. The deduction for subscription towards notified long-term infrastructure bonds, which was earlier limited to 20,000 before its withdrawal, needs to be enhanced to 50,000.

Re-introduce standard deduction

The standard deduction for salaried employees was removed by Finance Act 2005, with effect from April 2006. While a self-employed individual is able to claim as deduction the reasonable expenditure incurred to earn the income, there is no such provision for salaried employees. To remove this disparity, the Government can re-introduce the standard deduction for salaried employees with a limit of up to ₹100,000.

Make NPS more attractive Schemes such as National Pension Scheme (NPS) and Provident Fund (PPF) are seen by taxpayers as avenues for their retirement savings. But there are differences in the tax treatment of these products. While last year’s Budget specifically focused on encouraging investment in the NPS, not much success was achieved primarily due to the Exempt Exempt Tax (EET) basis of taxation of the product. To encourage investments, the NPS should be categorised as Exempt Exempt Exempt (EEE) for tax purposes instead of EET.

Make TDS less tedious There has been no revision in the threshold limits for applicability of TDS since many years. It's time to revise the same upwards. Also, senior and very senior citizens should be exempted from submission of Form 15H for non-deduction of taxes.

Procedural reforms The Government has been taking steps to make the income tax system tax-payer friendly. A committee set up to look at the income tax provisions has issued its first set of draft recommendations. The recommendations include mechanism on recovery of disputed demand, grant of timely refund with interest, simplification of tax deduction at source, instructions on adjustment of refunds, and amendment of the return form to make additional disclosures. The taxpayer can hopefully see measures in the Budget to further simplify the tax processes.

It’s a long list and meeting the many expectations of taxpayers may be a challenge; the To what extent the hopes are met will be known today.

Divya Baweja is Partner, Preeti Gupta is Senior Manager and Naveen Sharma is Deputy Manager with Deloitte Haskins & Sells LLP

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