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Budget 2019- Some proposals on personal Income Tax

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hemenvarma
Hemendra Kishore Varma is an alumni of IIT, Kharagpur and IIM, Ahmedabad. Has close to 45 years of working experience of which the first 15 years were spent in the industry with Voltas G. Claridge, and finally with Jenson & Nicholson as GM – Manufacturing. In 1987, started his management consultancy activities in the areas of Operations Management, MIS and Organisation & Human Resources Development. Has a number of published articles in newspapers and journals like Economic Times, Financial Express, Business Standard, Indian Management, Indian Express, Management Review, Himmat, HRD Newsletter etc. Founded The 5S Institute in January 2005. This is India’s (and, indeed, the world’s) first institute dedicated to providing training and implementation assistance in 5S. Has conducted over 50 Certification Programmes and there are close to 1100 Certified 5S Practitioners in India, today.
 

Last year’s budget was a big disappointment for the middle class and if the NDA Government wishes to win back its core constituency of middle class and the young, aspiring millennial, it can partly achieve this through the Union Budget by the following measures:

  1. Raise Minimum Tax Slab from Rs. 2.5 Lakhs to Rs. 3.0 lakhs:
    This will benefit all tax payers as well as those on the threshold of paying taxes, from Rs. 2500/- to Rs.15,000/- a year (5% to 30% tax slab).

Assuming a median figure of Rs. 5,000/- (as tax payers are maximum in the lower tax slabs of 5% & 10% IT) this means a revenue loss of Rs. 5000 X 6.84 Cr = Rs. 35,000/- Cr.

2. Raise Maximum Limit for Sec 80C benefits from Rs. 1.5 lakhs to Rs. 2.0 lakhs:
This will benefit all tax payers as well as those on the threshold of paying taxes, from Rs. 2500/- to Rs.15,000/- a year (5% to 30% tax slab).

Assuming a median figure of Rs. 6,000/- and number of tax payers benefiting as 60% of 6.84 Cr taxpayers (since all may not or may not be able to take this benefit) this means a Revenue Loss of  Rs. 6000 X 4.1 Cr = Rs. 24,000/- Cr.

The above 2 measures will get a huge shout from the middle and higher income class citizens and give them a sense of compensation for the neglect they feel they have suffered in the past 2 years of Budget-making.

3. Raise Sec 54 E savings limit for capital gains amount from Rs. 50 lakhs to Rs. 1 Cr and simultaneously:
Reduce interest rate of REC Bonds & other eligible instruments to 4.25% from current 5.25%. This is only an inflation adjustment as the limit of Rs. 50 lakhs was fixed well over a decade ago.

 

Such a measure will benefit all those making capital gains.

It is difficult to estimate the likely impact on Revenue on absence of any data with the author;  however Government may not have a big revenue loss owing to proposed reduction in Interest rates.

This move will be welcomed by all real estate investors and may, actually, help increase the “white component” of transaction even more, which will have many  other cascading benefits.

 

4. Introduce a unique tax support to those undergoing professional courses like Engineering Medicine, Law to begin with.
The proposal is, 50% of the fees (academic fees only) paid for such courses (not the fees billed but the actual fees paid net of any scholarship, grant or financial support) will be tax deductible in 5 equal installments in the FIRST five years of the person’s income, post-acquisition of the qualification.

This will benefit all those going in for higher education and address the needs of the student/ young professional community in the budget, directly, for the first time. The gradual introduction also allows government to calibrate the extent of support based on actual revenue loss discovered. 

It is difficult to estimate the likely impact on Revenue on absence of any data with the author.

Such a provision will draw enthusiastic support from students who are aspiring for higher education but are not well off and have to beg & borrow to be able to pay for the same. 

5. Drop the requirement for the tax payer to fill in Assessment Year in any and all tax forms – let him/her just enter Financial Year:
Financial year is so much easier and clearer for the average individual tax payer to understand: Let the software translate that into the appropriate Assessment Year for Tax department’s internal processing purpose. In fact, currently when you want to pay TDS or Advance Tax, you are asked to enter Assessment Year and the software displays a “flashing notice” saying “Please Note- this Assessment Year means this Financial Year”. Hence, it is clear that the software is capable of translating AY to FY; it can as well translate an FY entry to the corresponding AY figure.

This will be a huge relief to individual taxpayers who often make mistakes while entering this information while paying TDS, Advance Tax and Self-Assessment Tax and as a result, their tax  payment gets credited to the wrong year– recovery of which is a long, complicated and  irritating procedure.

This measure has no revenue impactIt is part of the ongoing effort  for making the Tax Department user-friendly and reducing errors in tax filing.  

6. Increase the time allowed for correcting “erroneous PAN entry  in Tax Payment Challans”  to 60 days from current 10 days or so  and make the process simpler and do away with any penalty for such erroneous entries. 

This will be a huge relief to individual taxpayers who often make mistakes while entering this information,  either a typographical error or simply due to hurry or carelessness. Very often,  such mistakes are discovered much later during internal audit or some kind of reconciliation activity etc.; hence the suggestion to increase the time limit for correction. 

This measure has no revenue impactIt is part of the ongoing effort  for making the Tax Department user-friendly and reducing errors in tax filing.

7. Simplify Rules for TDS for payment of rent beyond Rs. 50,000/- to NRI Landlords so that TDS Payments can be made as in the case of landlords who are resident Individuals and do away with requirement for obtaining TAN registration and filing of TDS Returns which is very cumbersome and also expensive as it requires professional help from a CA.

This will be a huge relief to tenants who are simply not geared to follow so many rules and requirements for getting TAN Registration and filing TDS Returns. It will also save them the cost of CA fees.

This measure has no revenue impactIt is part of the ongoing effort  for making the Tax Department user-friendly and reducing errors in tax filing.

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hemenvarma
Hemendra Kishore Varma is an alumni of IIT, Kharagpur and IIM, Ahmedabad. Has close to 45 years of working experience of which the first 15 years were spent in the industry with Voltas G. Claridge, and finally with Jenson & Nicholson as GM – Manufacturing. In 1987, started his management consultancy activities in the areas of Operations Management, MIS and Organisation & Human Resources Development. Has a number of published articles in newspapers and journals like Economic Times, Financial Express, Business Standard, Indian Management, Indian Express, Management Review, Himmat, HRD Newsletter etc. Founded The 5S Institute in January 2005. This is India’s (and, indeed, the world’s) first institute dedicated to providing training and implementation assistance in 5S. Has conducted over 50 Certification Programmes and there are close to 1100 Certified 5S Practitioners in India, today.

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