What can Income Tax Payers expect from the Union Budget 2018?

Considering that this is the last unhindered union Budget 2018 before next year’s elections by the present government, there is a lot of expectation riding on the shoulders of the Finance Minister and his team in terms of relief from levy for the common income tax payer.

Income Tax Payers expect from the Union Budget 2018

The Union Budget 2018 has been a statutory exercise since November 26, 1947, when the first such bill was tabled by then Finance Minister, R K Shanmugam Chetty. Traditionally, this document used to be served on Parliament on the last working day of February but since 2016, it is being done so in the first week of the same month instead.

Most of us are salaried working-class individuals who employ hard-earned skills to obtain living incomes. We want lower taxes, lower cost of vegetables, rice and wheat and better transport services. There is also the shocks to purchasing power and prices induced by demonetization and the first implementation of the GST regime to make up for.

For instance, medical prices have sky-rocketed but the annual income tax deduction you are offered has stayed at a measly Rupees 25,000 as per Section 80D of the Income Tax Act of 1961. Similarly, medical reimbursement is limited to Rupees 15,000. Then there is the 80C exemption limit for insurance, provident funds and so on at an inadequate Rupees 1 lakh 50 thousand.

Union Budget 2018

Unfortunately, there may be limited choices for the serving Finance Minister to offer concessions. There is a strong need for balancing Fiscal consolidation with Deficit financing to inject growth. Bank re-capitalization and re-calibrating the GST system should be and is the number one priority of the executive right now.
Note that the government borrows from the bond market when it doesn’t have adequate capital and that puts a strain on the cost of money, in turn, increasing inflation rates.

Pre-Budget Predictions:

Nevertheless, what can the salaried class reasonably hope for in this budget? Here are some possible benefits:

1. Reduction of tax rate on NPS withdrawal: Pensions are the only source of income for a large number of honest income taxpayers because of the frailties of old age and other ailments. It is hoped that the government will encourage contributions to the National Pension Scheme by lowering tax outgo under withdrawals and also relax the condition mandating investment in annuity. At the moment only 60% of the retirement fund can be withdrawn, of which, one third is taxable as income.

It can instead invest the money deposited here in infrastructure related equity to meet its financing requirements. Alternatively, there could be a rise in withdrawal limit not incurring incidence of tax. Tier 2 NPS withdrawals are currently a jumble of procedure requiring rationalization.
2. Bitcoin Taxation: Cryptocurrency is direly in need of a law to regulate its trade and transfer among users. Once, the RBI makes clear its position on this avenue of income, people would be encouraged to share capital gains information. This could be a new source of revenue for the union as well.
3. Another demand that seems to be gaining momentum is the shortening of the holding period for capital assets such as a house or estate so that property holders, too, can benefit from fluctuations in the market for purely speculative reasons so that they may be on par with stock investors. Taxes can then be revised instead. For homeowners, removal of the ceiling on deductions accounted by home loan interest payments would also be a huge break. Real Estate Investment Trusts (REITs), a relatively new investment vehicle in India for the small taxpayer is begging for an increase in LTCG holding period to bring them on par with equity instruments carrying a similar risk profile.
4. A popular demand before this year’s budget is the re-introduction of standard deduction applicable to every salaried individual to reduce the burden on personal taxes for middle-income families. Tax procedures require further streamlining and simplification to enable a broader tax base and enhance tax compliance.
5. There is also a case for increasing the exemption limit for income tax from Rupees 2 lakh 50 thousand to 3 lakh and possibly even 5 lakh considering the expenses and obligations of married couples in metropolitan cities today where most of the country’s population seems to be migrating to. Because of the likely shortfall in revenue, tax slabs could be re-jigged instead. The FM could introduce a new income tax slab of Rupees 10 to 20 lakh, decrease tax for the lower bracket and increase it for the higher bracket and so on.
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