As inflation pressures people, comes the desire for more tax breaks.
To begin with, people want the government to raise the basic income tax exemption limit. The current exemption limit is ₹2. 5 lakh, which many think is insufficient. Considering those with income up to ₹5 lakh get tax deduction under section 87A, it makes more sense to increase the exemption limit up to ₹5 lakh, thus simplifying the first step of calculating income tax.
Despite the application of lower tax rates in the new tax regime, auditors prefer the old version due to the exemptions listed therein.
Dev Ashish, Founder, Stable investors, He said: “There is a need to review the new regime without tax exemptions to make it more attractive and increase adoption. If there is no exemption, the deal can only be done by further reducing the tax rate and bringing back the slabs (& reducing it from the current six slabs to 3-4 slabs max) . To further reduce complexity and confusion, there is an urgent need to eventually have a single tax regime and bring stability to India’s special tax system.
Additional benefits under section 80C
Before every budget session, experts stressed the need to increase the exemption limit under Section 80C of the Income Tax Act.
Rajani Tandale, Product Head – Mutual Fund, 1finance.co.in, He said: “It was almost eight years ago in 2014-15 that the threshold below 80C was raised and since then the salary and expenditure of individuals have increased but the threshold for tax saving options has not increased. This increased limit not only eases the burden on taxpayers, but also promotes greater household savings and keeps inflation at bay.”
Increasing the exemption limit would be a good start to provide much-needed relief to salaried taxpayers from the ever-increasing tax burden. More tax exemption limit under Section 80C will prompt many investors to increase their investments which will not only give them good returns in future but will help them save more on taxes.
However, some financial experts believe that, despite repeated requests by taxpayers, the government will not raise the exemption limit. Viral Bhatt, Founder, money mantra, He said: “The government’s priorities have been different in the last two years as it tries to balance the impact of the epidemic and economic growth. Therefore, many participants in the fund agree that the government will not have the bandwidth to attend to the review of micro claims. Therefore, the budget may try to put more money on the taxpayers by reducing the costs. So don’t keep your hopes high.”
“It is difficult for the government to make different bailouts for each taxpayer. The government should look at increasing the current exemption limit ₹1.5 lakhs approx ₹2 lakhs minimum considering this will provide relief to the entire middle class. Alternatively, the government can look at increasing the basic tax exemption to approx ₹5 lakhs. Basically, the idea is to provide relief to the middle class from the tax burden,” said Aditya Shah, founder, JST Investments.
Remember the days when income from long-term capital gains (LTCG) and dividends were tax-free? Although investors would like to do away with LTCG tax, it does not seem to make sense. The government said last year that it had no plans to abolish the long-term capital gains tax.
Helping those with loans
Borrowing has become more expensive in the past year due to rising interest rates. Either people have to pay higher EMIs or opt for incremental loans, which forces them to pay more interest in the long run. The total salary is much more than the estimate while looking for the loan.
“Loan interest rates have gone up, hitting home buyers. For existing home owners the loan tenure goes up, for new buyers the EMI goes up. Currently, ₹1.5 lakhs of capital is allowed as deduction under section 80C. If it is removed from Section 80C and separate tax deduction for home loan repayment is allowed to go beyond section 80C, it will be a relief for home buyers. The taxable income will go up due to the additional deduction and this can be a positive change,” said Pratibha Girish, founder, Finwise Personal Finance Solutions.
The fund is redeemed after one year, and the government levies LTCG tax on the above income ₹1 lakh at 10 per cent. Another change sought from the government is to review the “holding period” or increase the holding period for a period of more than one year.
Bhatt added, “As for unsecured funds, debt funds, and debt balance funds if the holding period is more than three years or 36 months, they are classified as long-term capital assets. . If the term is less than three years, it is considered a short-term capital asset. Therefore, in my view, the finance minister should do the same with unaccounted money and debt money.”
Leave the switch unchecked
A transfer from a regular savings plan to a direct transaction should not be treated as a sale-purchase and therefore should not be treated as a taxable or outgoing item. The definition of sale-purchase should also exclude the change of plan from growth plan to dividend (IDCW) or vice versa.
Remember the famous slogan “tension gayaa pension lene”? However, the elderly complain that their retirement income is also causing tension considering that the government has imposed taxes on it. If we bring the pension under the income tax, what is ignored is that the owner is already paying the cost of the pension policy from the income tax.
In his 2023 budget list, Vighnesh Shahane, CEO and MD, Ageas Federal Life Insurance “In order to increase access to pension and make India a retirement society, especially since we do not have social security, our request is to make the pension tax-free at hand. ‘the customer because the pension has already been paid out of taxable income’.
Shahane further added, “Currently, section 80C of the Income Tax Act is full of many investment options for tax benefits, and there should be a bucket specifically for life insurance policies or increased limits ₹1.5 lakhs ₹2.5 million. At least one section dedicated to long-term life insurance policies will help address the country’s large security gap. “
Wanting more deductions or tax breaks may not be enough. Some financial experts dismiss this as wishful thinking. The idea must be to increase the tax base and not to reduce the net tax. “My guiding principle is that deductions are the worst way to manage tax returns – they create all kinds of perverse incentives,” says Gaurav Rastogi, founder, Kuvera.in.
Infrastructure depends a lot on public spending in taxes. The ITRs filed highlight our responsibility to this country. Bringing more people into the tax base allows them to take responsibility and contribute to the growth of this country.
Budget 2022: Highlights from FM’s Budget speech
First published: December 14, 2022 at 08:06 IST