Published Editorial

Budget 2017 - Expected tax changes for individuals

January 2017

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The Financial Express

By

Anand Dhelia
Tax Director, People Advisory Services, EY India

We are just a couple of weeks away from Budget 2017, which will be announced on 1 February 2017, almost a month earlier than usual. Everyone is eagerly waiting for this Budget, as hopes are high of it being a favourable one.

It is expected that this budget will restore liquidity through various measures and leave more money in the hands of the common man to boost consumption.

In the light of indirect taxes being streamlined through GST, this Budget could see a focus on direct taxes. Let’s find out what could be some of the expected changes in this Budget from the perspective of an individual:

  1. Hike in Basic Exemption and Widening of Slabs

    The speculation is that the basic exemption limit would be enhanced. The challenge before the Government is that tax payers are 1-2 percent of the total population and same will fall further if the basic exemption limit is raised to a substantial amount. Given the challenge, the Finance minister may consider increasing the basic exemption to a minimum of `3,00,000 and reduce the slab rates. The Finance Minister, in his Budget speech for 2015, had mentioned that the Government will reduce the tax rate for domestic companies from 30% to 25%. People will be happy if something similar is done for individuals with slab rates starting from 10%, and ranging to various slabs like 15%, 20%, 25%.

  2. Re-introduction of Standard deduction for salaried Individuals

    There are various expenses that the employees incur during the course of employment which one cannot claim as deduction. As a result, salaried employees shell out more taxes in comparison to their income. This is in stark contrast to companies which claim many expenses as allowable business expenditure. Hence, provisions similar to that of erstwhile standard deduction could be reintroduced thereby resulting in more money inflow to the taxpayer.

    Approximately, 20% of the gross salary subject to a maximum limit of, say, `1,00,000 could be considered for the purpose of standard deduction. 

  3. Increase in Upper Limit of Various Exemptions

    Many of the exemptions available to individuals have upper limits which have been fixed decades ago. Considering the effect of inflation and rise in the cost of living, the current limits have become redundant and actually serve no purpose. Hence, enhancement of these limits has become important.

    Few of the exemptions which could see an enhancement this year are:

    Sl No. Particulars of Exemption Current Upper Limit (`) Year since last changed Expected Change (`)
    1 Children Education Allowance 100/month 1997 1,500/month
    2 Children Hostel Expenditure Allowance 300/month 1997 2,000/month
    3 Medical Reimbursement 15,000/year 1999 30,000/year
    4

    Perquisite in respect of the following

    a) lunch / refreshment

    b) Value of any gift etc. on ceremonial occasions or otherwise

    50/meal

    5,000/year
    }2001

    100/meal and to be extended to electronic meal vouchers

    10,000/year

    5 Clubbing of Minor child’s Income 1,500/minor 1992 5,000/minor
  4. Revision of Limit under Section 80C

    The existing deductions under Section 80C has seen the limit set at `1,50,000 in Budget 2014. This budget is very much expectant on a hike in the upper limit of deduction under Section 80C to `2,00,000.

  5. Re-introduction of Section 80CCF - Deduction for Long Term Infrastructure Bonds

    The deduction under Section 80CCF for subscription to notified long-term infrastructure bonds was available for only two financial years (i.e., 2010-11 and 2011-12) with an upper cap of `20,000.

    In order to improve liquidity in infrastructure sector, it is expected that suitable amendments will be made so that this deduction is available across many years with a revised upper cap of `50,000.

  6. Higher tax breaks for Home Loans

    The realty sector has seen a big hit post demonetization, hence providing higher tax breaks to individuals for home loans could boost demand in the housing sector. Hence, it is likely that tax concessions on home loans could be raised from the existing limit of `200,000 to `300,000.

This Budget could also see many schemes to incentivise digital transactions in order to promote a cashless society. Hopefully, the Budget would bring cheer to the common man.

(Views expressed are personal)