Budget 2020 expectations - Personal taxation front

Following 5 things are expected in the current economic context to reduce personal income tax to boost consumption demand.

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. Government can simplify and make incomes up to Rs.5 lakhs totally tax exempt. Though there is an outside chance of making it zero sum game by raising tax on income above Rs. 25L. 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.

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.2-3 lakhs and the NPS can be integrated into this overall limit. The ELSS exercise can also be extended to DLSS (Debt-linked equity schemes)

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.3-4 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

The standard flat deduction of Rs.50,000 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.

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!


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