Union Budget for Taxpayers: Will IT Slab Increase or Decrease ?
One of the key expectations for the general tax payers is a reduction in tax liability. This can come in any form. It can either come as a higher tax bracket limit. It can also come in the form of higher standard deduction.
It could come as higher exemptions or rebates which would still boost your post-tax income. If none of these happens, people expect that at least the tax process would be simplified so that tax payers go through lesser hassles.
Ahead of Union Budget 2022, individuals have a number of key expectations on the personal taxation front. Here is a gist of what people expect.
Major Expectations on the Direct Tax Front
Can the Budget 2022 rekindle consumption and growth? One way is to put more money in the hands of people is by giving appropriate tax breaks. It is not just about tax slabs, so let us look way beyond tax slabs.
1. The basic exemption limit of Rs.250,000 is overdue to be raised in Budget 2022 to Rs.500,000. Let us understand that incomes up to Rs.5 lakhs are already exempt via rebates but then if your annual income is above Rs.2.50 lakhs then returns have to be filed and the procedural hassles have to be gone through. Raising the limit will be a help.
2. Secondly, the multiple slabs of tax is too confusing and has just too many slabs for comfort. What the government can do in Budget 2022 is to revert to a single taxation formula with a higher base exemption of Rs.5 lakhs and all other rebates restored.
3. Time to look at a pragmatic revision of Section 80C. The current exemption limit of Rs1.50 lakhs was set more than 15 years ago and has largely lost its meaning with the rising levels of income. It is time to now reposition it higher at Rs.5 lakhs where it can remain stable for some time.
It will also ensure that more middle income persons also get the full benefit of Section 80C investments and outlays.
4. Home loan exemptions under Section 24 of the Income Tax Act are out of sync with the cost of housing. The current limit of Rs2 lakhs needs to be hiked to Rs.5 lakhs immediately. The low cost housing exemption can continue, if required.
5. A key to a secure future is health security and that comes from health insurance. This is more so in the light of the risks highlighted by COVID-19. Unfortunately, in the light of enhanced risks, the costs of insurance have gone up sharply.
There are 2 things Budget 2022 can do. In addition, the benefits of Section 80D of Rs.25,000 for those under 60 can be enhanced to Rs.50,000. For senior citizens; it can be enhanced from Rs.50,000 to Rs.75,000.
6. The best way to invest in future economic growth is to invest in education. The current exemption under Section 80E for interest on education loan is limited to 8 years and needs to be increased to 15 years. It is time for government to offer at least 5% subsidy on education loans. It is not comfortable to realize that in India Pizzas reach you faster than an ambulance and car loans cost you less than education loans.
7. It is also the right time to enhance the standard deduction from the current level of Rs.50,000. This limit is being offered in lieu of transport and medical reimbursement. Ideally, the government should offer a standard deduction of Rs.1 lakh plus restore the original limits for transport and medical reimbursements. That would be a big relief in a tough year for people.
8. It is time to make exemptions automatically adjustable with an inflation peg; just like dearness allowance. It is time to annually reset exemption limits for various sections of the Income Tax Act that is pegged to inflation. For simplicity, the revision can be done once in 3 years instead of each year. This would also make budgeting simpler.
9. Finally, some relief for small businesses and MSMEs is overdue. Most MSMEs are structured as proprietorships, partnerships or LLPs and they pay peak 35% tax rates compared to corporates paying between 15% and 25%. MSMEs, irrespective of structure, must be brought at par.
Also, the presumptive scheme for small businesses has a turnover limit of Rs.50 lakhs, which needs to be enhanced to Rs.1 crore.
Budget 2022-23 is must give the much needed boost to disposable incomes. With a slew of elections coming up, people friendly reforms will be a good idea.
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