What are expectations from the Budget on direct taxes?
The issue of corporate taxes has been fairly settled with the exemption given in Sep-19. The corporate tax rates have been simplified and reduced to 22% and it is time to make life a lot simpler and less taxing for individuals also. Here are some key expectations on this front.
Taxable income to be raised
Today, the maximum tax free income still continues to be Rs.2.50 lakhs. But, incomes up to Rs.5 lakhs get a rebate so the tax is zero. This is unfair to some person whose taxable income is Rs.5.5 lakhs as their tax liability begins from Rs.2.50 lakhs. One expectation is that the base exemption limit will be raised to Rs.5 lakhs and tax returns will have to be filed only if income is above this limit. That will not force people to wait for refunds and also reduce the admin hassles for the Income Tax department.
Enhance Exemption limits
Both Section 80C and Section 24 need to be updated. The current limit of Rs.1.50 lakhs for Section 80C is too low considering the spread of investments available. That needs to be enhanced to around Rs.3 lakh to make it more in tune with the times. Secondly, the limit of Rs.2 lakhs for interest on home loans is too low considering property prices in most cities. That needs to be enhanced to Rs.5 lakhs to be meaningful. The CBDT can look to include principal on home loans also under Section 24.
Wider presumptive tax
Limits of taxation are a lot more micro in nature. The best way to go ahead is to arrive at a presumptive form of tax for most incomes. Today, business incomes are subject to presumptive tax of 6-8% with no books of accounts needed. However, the income limit of Rs.50 lakhs is just too low and that can be raised to Rs.2 crore to be meaningful and improve compliance. In addition, this budget must also look at allowing NRIs under the ambit of presumptive tax to simplify taxation for them. The government must also now consider if it can move towards getting rid of all exemptions and moving to a flat presumptive tax on total income for all, which can be imposed in a graded manner. That could be a big shift.
Enhance tax to GDP ratio
The government needs to consider ways and means to enhance the tax/GDP ratio, which is still too low by global standards. Presumptive taxes can be one way of covering more of small traders and professionals. Secondly, a large number of rich farmers are not being taxed and it is high time the tax is imposed, even if at a concessional rate for the time being. Lastly, tax revenues are unlikely to improve if the real high income groups are allowed to get away with paying minimal tax. These are necessary if India has to reduce the burden of tax on the middle class!