Re­lief At Hand on Your Tax Load

Ex­perts say though there’s not much scope for tax cuts, lower- and mid­dle-in­come groups may get some help

The Economic Times - - Personal Finance - BABAR ZAIDI

Imag­ine if the ba­sic tax ex­emp­tion is raised to ` 3 lakh (an additional ` 50,000 ex­emp­tion for women and se­nior cit­i­zens), in­ter­est on bank de­posits is made tax-free and there is no tax on pen­sion if you are over 60 years of age. The BJP had promised all this and more in its 2009 man­i­festo. This time around, the party toned down its prom­ises, couch­ing them in vague state­ments with­out men­tion­ing spe­cific mea­sures. Its 2014 man­i­festo said that the UPA govern­ment has “un­leashed tax ter­ror­ism” and promised that the BJP would “pro­vide a non-ad­ver­sar­ial and con­ducive tax en­vi­ron­ment, and ra­tio­nalise and sim­plify the tax regime”. Even so, ex­perts be­lieve that the tax outgo of lower- and mid­dle-in­come earn­ers may come down this year. “Given the cur­rent eco­nomic sit­u­a­tion, there is re­ally not much scope for the govern­ment to cut taxes. But the pub­lic is reel­ing un­der high inf la­tion and some re­lief might be on cards for lower- and mid­dle-in­come groups,” says Kuldip Ku­mar, ex­ec­u­tive di­rec­tor, PwC In­dia. “Tax­pay­ers can ex­pect widen­ing of tax slabs, ra­tio­nal­i­sa­tion of cer­tain ex­emp­tion lim­its and rais­ing the de­duc­tion limit un­der Sec­tion 80C,” says Divya Baweja, part­ner, Deloitte Hask­ins & Sells.

“The tax de­duc­tion un­der Sec­tion 80C should be raised to ` 2 lakh,” says Sud­hir Kaushik, CFO and co-founder of e-fil­ing por­tal Taxs­pan­ner.com. He sug­gests that the additional ` 1-lakh in­vest­ment be specif­i­cally ear­marked for in­fra­struc­ture bonds and re­tire­ment prod­ucts.

The big chal­lenge be­fore the Naren­dra Modi govern­ment would be to marry these ex­pec­ta­tions with the re­al­ity of the short­fall in tax col­lec­tions. Though di­rect tax col­lec­tions ex­ceeded the re­vised tar­get of ` 6,41,835 crore in 2013-14, they were still about ` 23,000 crore be­low the orig­i­nal tar­get.

If the govern­ment wants to cut taxes or en­hance de­duc­tions this year, it will have to bal­ance the fore­gone tax by boost­ing col­lec­tions and en­sur­ing stricter com­pli­ance.

For tax­pay­ers, this means greater scru­tiny of their in­come. The CBDT has al­ready sounded a warn­ing by putting salary slips un­der the scan­ner. In Oc­to­ber 2013, salaried tax­pay­ers who sought tax ex­emp­tion for HRA of more than ` 8,333 a month were asked to men­tion the PAN of their land­lord. The new tax forms no­ti­fied last month seek a break-up of the ex­empted in­come re­ceived and cap­i­tal gains earned by an in­di­vid­ual.

Mer­ci­fully, most tax ex­perts don’t think the govern­ment will widen the ser­vice tax net or in­crease the rate.

“There is no scope for fur­ther in­creas­ing the tax bur­den on ser­vices as they are al­ready strug­gling with a high tax bur­den and the im­pact of the eco­nomic slow­down,” says DK Sri­vas­tava, chief pol­icy ad­vi­sor, Ernst and Young. Oth­ers point out that widen­ing the ser­vice tax or in­creas­ing its rate will have a cas­cad­ing ef­fect on in­fla­tion. “Any in­crease in in­di­rect taxes will hit the rich and poor with equal force,” says Kuldip Ku­mar of PwC.

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