Some recommendations that could ease the income tax burden on individuals, and improve the economic growth rate on account of increased domestic demand are mentioned below:
Raise the bar: The slab of tax free income has not moved up in line with the real inflation. The current basic exemption limit of Rs 2,50,000 should be increased to Rs 3,00,000. This will increase the purchasing power of individuals and stimulate demand.
Reduce the maximum tax rate: Lower and middle income group can be benefitted by reducing the peak rate from current 30% to 25%. Further, the peak rate should be attracted at significantly higher income slab (as compared to current limit of Rs 10,00,000). Though this aspect has been recognised in the proposed Direct Tax Code (DTC), the same also needs to be considered in the forthcoming budget.
Increase the investment limit under Section 80C of I-T Act: Though , the avenues for investment under Section 80C have been increased with the years, the limit of Rs 150,000 is not significant considering the avenues. The Government should increase the aggregate deductible limit under Section 80C of I-T Act from Rs 1,50,000 to Rs 2,50,000. This will encourage long term savings by tax payers and also enhance availability of low cost funds for the Government to meet its long term development needs.
Additional benefits related to housing: Currently, an individual is permitted deduction for interest on loan for a self-occupied property up to Rs 2,00,000. The Government should consider increasing this limit to Rs 3,00,000 or alternatively, this cap may be scrapped.
Also the deduction available under Section 80C of I-T Act on repayment of principal amount of housing loan should be appropriately increased. This would not only encourage investment in the real estate sector but will also make buying a house relatively affordable.
Medical expense reimbursements: Medical expenses of up to Rs 15,000 reimbursed by the employer to the employees for medical treatment of employees or his family member are tax-free. Accordingly, employee ends up paying tax on any sum reimbursed over and above Rs 15,000. With increasing healthcare costs, the existing tax free limit of Rs 15,000 should be suitably increased.
Transportation expenses: The transportation allowance granted by the employer to his employee for commuting between the place of work and residence is tax-free to the extent of Rs 800 per month. This limit was fixed more than a decade ago, and definitely needs to be revised upwards given the rising commuting costs across the country.
Tax relief on contribution to superannuation fund in excess of Rs 1,00,000: Currently employers contribution to superannuation fund in excess of Rs 1,00,000 is taxed in employees hands. Employees should not be made liable to pay tax on such contribution the benefit of which may or may not arise and the benefit is subjected to tax at the time of actual receipt.
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