Published Editorial

Budget 2017 - Expectations from personal taxation

January 2017

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Amarpal Chadha
Tax Partner & India Mobility Leader, EY India

Uncertainty over the date of Union Budget 2017 has finally been cleared with the Supreme Court rejecting the plea of delaying the Budget. However, there has been no uncertainty over the fact that individual taxpayers are expecting big relief from Budget 2017, irrespective of its date. Numerous experts have opined that in order to bring normalcy in the economy after demonetisation, Government will have to strengthen purchasing power of the individuals. Let us look at some of the common expectations on the personal tax front.

Expected reliefs:

Change in slab rates:
Increase in basic exemption limit has been the most common way of granting relief to mass individual taxpayers. The existing limit of Rs 2.5 lakh was set in Budget 2014. Considering there has not been any change in the tax slabs in last couple of years, the expectation is that the basic exemption may be increased.  The increase may bring the basic exemption to be anywhere between Rs 3.5 lakhs to 4 lakhs whereas tax slabs may remain unchanged.

Revision of limit under Section 80C:
Deduction under section 80C is the investment linked deduction and has been the instrument encouraging individual taxpayers to invest in saving instruments. Considering the long list of investments eligible for deduction e.g. EPF, PPF, home loan repayment, life insurance premium, ULIP, NSC etc., limit of Rs 1.5 lakh set by Budget 2014 seems insufficient. Taxpayers expect this limit to be increased to Rs 2.5 lakhs.

NPS at par with EPF:
Government in the last Budget had made up to 40% of total withdrawal from NPS exempt from tax. Budget 2016 also proposed similar rules for EPF indicating intention of bringing NPS and EPF on the same platform. The EPF changes were rolled back later and the expectations are that withdrawal from NPS should be made exempt making it EEE and more attractive.

Additional relief for salaried taxpayer:
Several committees have been recommending year after year to bring back the erstwhile standard deduction for the salaried taxpayers.  The salaried taxpayers would be expecting a relief in the form of standard deduction which may be capped up to Rs 1 lakh depending on the total salary.

Another relief available to salaried taxpayer is on account of medical expense reimbursed by the employer capped at Rs 15,000. This limit was set in Finance Act 1998 and medical expenses have soared since then.  This limit is expected to be increased to Rs 50,000.

Revision of limit for interest on housing loan:
Currently, taxpayers are allowed to claim deduction of Rs 2 lakhs for interest on housing loan for a self-occupied property. Various banks have reduced the interest rate for home loan substantially post demonetisation which is expected to give much needed boost to the real estate industry. In order to further encourage real estate industry, it is expected that Budget 2017 may increase the limit of deduction to Rs 3 lakhs. This would encourage individual taxpayers to invest in real estate thereby increasing the demand.

Increase in deduction on interest income:
Currently, Rs 10,000 is allowed as deduction for interest earned only in the savings account. There is no deduction on the interest earned from time deposits. Post demonetisation there has been reduction in the interest rates for deposits which may be one of the major source of income for many senior citizen taxpayers. In order to incentivise this group of taxpayers, Budget 2017 may extend this deduction for time deposits and increase the limit to Rs 50,000.

Finance Ministers speech in previous Budget hinted reduction in corporate tax rates and similar to individual taxpayers, the corporate taxpayers are also expecting a rate cut. Even though the individual taxpayers would have the above changes in their wish-list, one needs to wait and watch if Finance Minister has been left with enough in the kitty for everyone.

Disincentives for cash transactions:
Where several benefits have already been announced on payments made through digital mode, in order to continue the agenda of cashless/ digital economy, this Budget may announce charges/ tax on cash transactions above a certain limit.

(Navneet Golchha, Senior tax professional, EY India)

(Views expressed are personal)