Will Budget 2018 rejig tax slabs, clarify tax treatment on Bitcoin? Here are a few expectations

Will Finance Minister, Arun Jaitley, provide relief to individual tax-payers in the coming Union Budget? With the Budget to be the last full one of present government of Prime Minister Narendra Modi, there are hopes that it might include major reliefs for taxpayers with an eye on the general elections in 2019.

“With the implementation of GST and the demonetisation decision, during last 1 year, as per Government’s own statements, the tax base and number of taxpayers under tax net have increased significantly. In view of this, the Government may give some significant relief to taxpayers in the Budget,” Rakesh Nangia, Managing Partner, Nangia & Co told Moneycontrol.

Nangia feels that among other things, there are expectations that the government might slightly alter the tax-slabs and increase the investment cap for tax relief under Section 80C of the Income Tax Act.

Nangia listed out the following expectations from the Budget:

Rejig in income tax slabs: Presently, taxable income up to Rs. 2.5 lakhs is exempt from tax from individual taxpayers. Income falling between slabs of Rs 2.5 lakhs to 5 lakhs, Rs 5 lakhs to 10 lakhs and above Rs. 10 lakhs are taxable at rate of 5%, 20% and 30% respectively. Substantial relief to middle income group taxpayers may be available, if the Government rejigs the tax slabs and introduce another slab of 10% for income slab between Rs 5 lakhs to Rs 10 lakhs. Further, limit of Rs 10 lakhs for applying highest tax rate of 30% may also be revised upwards considering increased expenditure levels.

Increase in limit for investment in tax-saving schemes: Presently, deduction of a maximum Rs 150,000 is allowed to all individual taxpayers for investing in various tax saving schemes, such as EPF, PPF, life insurance schemes, National Savings Certificates, ELSS, etc. under section 80C. Additional deduction of up to Rs. 50,000 is allowed for investment in National Pension Scheme under section 80CCD (1B). The Considering the increase in cost of living and consequently increase in need for higher savings, it is expected that the cap of permissible deductions under above-mentioned sections may be increased to around Rs 2.5-3 lakhs, to encourage individuals to save more towards their retirements.

Increase in monetary limit for medical reimbursements, transport allowances: It is also expected that limits for certain tax free reimbursements/allowances to salaried taxpayers, such as Rs. 15,000 per annum for medical reimbursements, Rs 1600 for transport allowance, etc. may be increased to meet the increased cost of medical and transportation.

Archit Gupta, Founder & CEO, ClearTax, hopes that the medical reimbursement limit should be doubled to Rs 30,000. “Saving tax on medical bills has always been a popular demand. A limit of Rs 15,000 is barely enough for even a small family, let alone a big one. With doctor consultation fees increasing by the day and a child’s vaccination going up to Rs 2000 for just one shot, it will only be fair if the government raises the limit to at least Rs 30,000,” he said.

Here are Gupta’s tax suggestions for Budget 2018.

Measures to make NPS preferable: Saving for Retirement! Most of us do understand why it is important to save up for the post-retirement years but it’s still a concept oblivious to some. For the matter of fact, EPF or PPF or a property are the only three resorts people count upon for the most needed years. While EPF is tax-free, returns are quite low and it can be really difficult to accommodate such goals. PPF has an Rs 1.5 Lakh limit owing to which one cannot invest a lot of money in it. In such a case, NPS is a product which can help taxpayers invest for retirement as it invests in equity to match the risk profile. But NPS is still not preferred due to the taxation of at least 20% of corpus at the time of withdrawal. Besides, a major half must also be invested in an annuity. What will make this an effective and endorsed mode of investment is if a higher corpus is allowed to be withdrawn without tax implication, as well as raise the annuity rates for NPS.

Clarity on bitcoin taxation: Despite RBI’s cautionary for investors about bitcoins not being authorised; they continue gain more popularity in India. The government should already talk about the tax implications of investing in Bitcoins and also whether this will require disclosure in tax returns forms or not.

LTCG exemption on equities should continue: Since the indirect taxes collections being lower than expected, the government may have to find other ways to boost revenue. Taxing long term gains from equity markets that currently enjoy 100% tax exemption could be one option. However, this will not make a good news for the middle class that is finally reaping the benefits of investing in equity over long term. Post the demonetisation, a massive amount of money has already gone into equity markets, so hoping this does not participate in 2018’s Budget policy.

Simplification of tax laws: Nobody wants a layered tax system which unfortunately is the case today. With all the redundant layers of taxes on merely a good or a service, the clutter needed to be fixed immediately. Which is why the government set up a special task force for the simplification of direct taxes. Let’s hope this task force rejuvenates our tax system and adds relevance to it.

Tax benefits on Philanthropy: India is progressing overall, no doubts. But there are few areas such as sanitation, education and healthcare that need severe care, funding and attention. Apart from the government taking measures, individual philanthropists can play a critical role in changing the conundrum of a situation. While philanthropy is actually a fitting idea, allowing tax benefits will only encourage more people. As of now, tax benefits are only available on donations made under Section 80G or to projects eligible under section 35AC, only when pre-approved by the government. Extending tax benefits to individual philanthropists who make large donations in education and healthcare sector, will definitely encourage others too.