Come the budget season and the Finance Minister becomes Santa Clause. Everyone expects him to bring in some goodies. I also expect this Santa Clause to correct some anomaly in the income tax law and hand some goodies to the “Aam Admi” Let us discuss my wish list.
Raising the limit for eligible deduction under Section 80C, 80CCC and 80CCD
Presently the Section 80 CCE provides for a cap of Rs. 1.50 lacs for deduction available under Section 80C, 80CCC and 80 CCD(1) taken together. The present limit of Rs. 1.50 lacs was raised from Rs. 1 lacs in the budget of 2014. The erstwhile limit of Rs. 1 lacs was fixed in 2003 for these benefits. It has been almost 14 years during which the limit has been just increased by 50% which works out to just 2.98% annually. This increase has not even kept pace with the inflation during this period leave aside increase in the income levels. So the Finance minister should increase this to 2.5 lacs. India is the country of savers and enhanced tax incentives will certainly go a long way in diverting savings from physical assets to financial assets.
Rationalization of short term capital gains on equity shares and equity oriented units of Mutual Funds
In order to give relief to the tax payers and to boost the capital markets, the government had introduced a concessional short term capital gains @ 15% in respect of equity shares and equity oriented units of mutual fund on which securities transaction tax (STT) is paid. As against this flat rate of 15%, other short term capital gains are taxable at the slab rate which varies from 10% to 30%.
This prescription of 15% has brought in effect the law of unintended consequences. For a person in 10% tax slab has to pay tax @ 15% on such short term capital gains. Since the 15% flat rate. was supposed to be a concessional rate and is acting as punitive rate for the taxpayer in the 10% slab rate, the finance minister should correct this anomaly.
Remove the ceiling on interest deduction self occupied house
The income tax laws allow benefits on interest for money borrowed for purchase or construction of a house. For a let out property the the tax payers is entitled to full interest benefit. This is used as tax saving measure by people in higher tax slab due to difference between the rentals and interest payable on the home loans. The same tax benefit gets curtailed to Rs. 2 lacs for one self occupied house property. Logically the tax benefits available should be the other way round and it is the genuine home buyers who should be provided the benefit of full deduction for the money borrowed for the purpose of his own residence and not the investors. This ceiling of tax benefit on let out property will put a check on speculation in real estate prices in case the interest benefit is restricted in respect of let out properties.
Moreover the amount of income tax benefit gets drastically reduced to Rs. 30,000/- in case the construction of the property is not completed within three years from end of the year in which the money is borrowed for an under construction property. Nowadays delay in completion of the construction beyond three years by the developers is a norm rather than an exception. It is unjust on the part of law to penalize the home buyer for no fault of him. The finance minister should correct this.
Taxability of NPS withdrawals
Presently under provisions of Section 80CCD(3), any amount on which deduction for NPS has been allowed, is received back by the subscriber on its closure except to the extent annuity purchased is treated as income of the year in which the money is received. NPS is supposed to be a substitute of Employee Provident fund (EPF) scheme. Under EPF, the money received at the time of retirement is fully exempt. So logically the amount received on closure of the NPS account should also be made exempt. This was proposed in the Direct Tax Code but since the same has almost been scraped, this provision should be introduced in this budget.
I am sure the Santa Clause will hear and grant these goodies to the Individual tax.
(Balwant Jain is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. He can be reached at firstname.lastname@example.org)