From “Halwa Ceremony” to the day of Budget presentation is a time full of rumours, speculation, and surprises. Ahead of election, it is going to be an interim budget & not a regular full-fledged budget. However, statement from the FM suggests that major policy announcement may find place in this interim budget.
Budget passed every year by the Parliament gives the right to spending to the Government till the end of the financial year only i.e., till 31st March. For incurring expenses beyond 31st March, an authority from Parliament is needed. With interim budget, Parliament passes a vote-on-account which gives power to the Government to meet the expenses from 1st April of next fiscal.
Whether major reforms in taxation rules & policies can be carried out in Interim Budget?
There appears to be no such limitations on the powers of the Government. Such limitations come into force only after the election dates are announced and the model code of conduct comes into force. Government presenting the interim budget normally refrain itself from announcing any major tax decisions though in few earlier years some decisions were announced during interim budget as well.
With the presence of all powerful GST council, the chances of making any major changes in the structure or rates through interim budget may not be there. On direct tax front, Taxpayers have lot of expectations as under:
Increase in the Basic Exemption Limit:
One of the biggest expectations on card is the increase in the threshold of basic exemption limit. The rumour suggests that it will be enhanced from Rs. 2.50 Lakh to Rs. 5 Lakh. However, this is too challenging considering the fact that major chunk of the population is still not in the tax net. Increase in the basic exemption limit carry the risk of drastically reducing the number of individual taxpayer in the Country. Direct increase in the basic exemption limit will benefit all classes of Individual Taxpayers, even to High Net worth Individuals (HNI).
Alternate option at the disposal of FM could be to increase the deduction limit available u/s 87A which presently offers deduction up to Rs. 2,500/- if income does not exceed Rs. 5 Lakh. It can be increased to say Rs. 12,500/- if income doesn’t exceed Rs. 5 Lakh thereby making tax liability as zero if income doesn’t exceed Rs. 5 Lakh.
Benefit to Salaried Taxpayers:
Last year, salaried taxpayers were offered the benefit of standard deduction of Rs. 40,000/- which was coupled with the withdrawal of deduction of Rs. 15,000/- towards medical reimbursement & Rs. 19,200/- towards conveyance allowance. The net benefit was of Rs. 5,800/- only which was almost insignificant in monetary terms considering the fact that salaried class of taxpayers are considered as the most honest class of taxpayers. It is expected that the benefit of Rs. 15,000/- & Rs, 19,200/- may be restored.
Lower tax rate:
Individual have a higher tax rate of 30% as against corporate tax rate of 25% for companies with a turnover not exceeding Rs 250 Cr. There are the chances that the highest personal income tax rate for individual taxpayer may be reduced from existing 30% to 25%. Further various associations are strongly demanding to stretch the benefit of 25% corporate tax rate to the large companies with turnover exceeding Rs. 250 Cr. However, it is unlikely that such benefit would be extended to such large companies.
Increase in the limit of deduction u/s 80C:
The limit of Rs. 1.50 Lakh deduction u/s 80C has remained undisturbed since long. Every year, there is strong demand for its enhancement to Rs. 2 Lakh or even more. There is a strong expectation that the limit may be enhanced this year. If the government announces such a move, it will be beneficial for millions of people in the country.
Some minor benefit on the health care sector, housing sector, education sector is also expected by the taxpayers. With just 3 days to go, the final countdown has begun. Being election year, expectations of new announcements are high. Let us wait and watch.