In the Union Budget 2018, the government may bring changes in income tax slabs to reduce the burden of individuals. Around 69 percent people feel that the limit of the taxation should increase that can easily boost the disposable income when it comes to the hands of people. In the last budget as well, the Finance Minister, Mr. Arun Jaitely didn’t make any change in the slabs, but still provided a marginal relief to small taxpayers that is basically the reduction in the rate from 10 percent to 5 percent for individuals having the annual income between Rs. 2.5 lakh-Rs. 5 lakh. The finance minister will present the Budget for the financial year 2018-19 tomorrow.
What are the expectations on the income tax front from Budget 2018?
- Tax Slab rejig: People are expecting that in order to offer more purchasing power to the common man and small entrepreneurs, the limit of minimum tax exemption can increase from the present one which is of Rs. 2.5 lakh to Rs. 3 lakh per annum. It will provide a great relief to the common people and small entrepreneurs as well.
- Standard deduction can come back: It is expected that in place of several outdated deductions, a single standard deduction will take place to reduce the tax burden of employees. It may include a flat deduction from the income of the salaried person related to the expenses that an employee will incur in relation to the employment. It will also be available to the salaried individuals on their taxable income.
- Medical reimbursement: Everyone knows that the limit of Rs. 15,000 was introduced in the year 1999. It is suggested that the exemption limit on medical expenses should be raised to atleast Rs. 50,000 per annum.
- Section 80C of the Income Tax Act:The tax exemption under section 80C helps a lot in the savings of an individual. The deductions in the same were last raised in the financial year 2014-15 where it was increased from Rs. 1 lakh to Rs. 1.5 lakh per year. Just to encourage the concept of savings there are various helpful instruments such as PPF, tax savings FDs, etc, the limit of the same can be increased to Rs. 2 lakh. It is also suggested that the government should think about reducing the tenure of tax –exempted retail term deposits to the minimum of three years from the current five years.
- Dividend distribution tax: The government should think about doing away with the dividend distribution tax (DDT) in Budget 2018 that would be unveiled tomorrow. Dividends paid by a domestic company to shareholders are subjected to dividend distribution tax at 15 percent of the aggregate dividend declared. The effective rate is 20.35 percent. The dividend income is tax-free in the hands of investors. But, still if the amount of dividend income exceeds Rs. 10 lakh on a gross basis, an additional tax of 10 percent applies on dividend income.
- HRA: Higher deductions are there for employees of the four metropolitan cities – Mumbai, Delhi, Kolkata, and Chennai. However, if we look for the same in other cities such as Bengaluru, Hyderabad, Pune, Ahmedabad, Jaipur, Noida, Gurgaon, etc. there are no such deductions. Hence, the government should include more cities under the section of higher exemptions for HRA.
- Reduction of period of holding for property: Under a few provisions such as 54 and 54F, the investor in a residential house property is required to hold property so acquired for three years for retaining the capital gain exemption for long-term gains. The government should consider about the period of holding to adjudge long-term capital gain has itself been reduced to two years. Consequently, in a situation where one can sell a house property after two years of its purchase and the gain will be a long-term capital gain. A few changes should be there in these provisions as well, so that the period for holding the new assets acquired should also be reduced to two years.
- Leave travel allowances or LTC: As per the current tax laws, a tax exemption is allowed for actual expenditure that takes place in respect of travel in India and it is allowed for two journeys in a block of four calendar years. It is expected to allow the exemption in respect of one journey per year.
- Children education and hotel expenditure: There is a need of a higher exemption limit on the allowances received for children’s education and hostel expenditure. As per the current tax laws, children education allowance of Rs. 100 per month per child up to a maximum of two children and hostel expenditure allowance of Rs.300 per month per child up to a maximum of two children is not taxable.
A lot of changes are required in the Union Budget under tax slabs. Some are for companies, some are for employees. To provide more ease to both of them many provisions are there and many would come tomorrow. This time people especially have an eye on Budget related to the tax slabs as in the last couple of years, many things have changed, that’s why people are expecting more from this budget.So, Good Luck!
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