For once, the perpetual hope that the Finance Minister will provide some cheer to the common man seems to be a reality. Things have never been better with the buoyant collections from the personal income tax segment to go in hand with better compliance. So what is it that will make this a dream budget for the common man?
With the ever-so increasing prices and our tax structure not being in sync with inflation, there is a need to provide relief to the common man in the form of enhancement of basic exemption limit alongwith realignment of existing slab rates. The current effective tax rate at the highest slab works out to 33.99per cent. As a relief, all surcharges should be removed and maximum tax rate of 25 per cent should be introduced to avoid tax evasion and increase the tax base. Rationalisation of these provisions is the foremost step in providing relief to the individual class.
The classic debate on tax implications arising out of sale of shares on the stock exchanges ie whether the gains should be taxed as business income or exempt long term capital gains and concessionally taxed short term capital gains must be resolved in favor of capital gains to bring clarity and avoid protracted litigation.
Further, given the inflationary trend in the economy along with the higher interest rates, present limit for interest deduction of Rs 1.5 Lakhs for income from self occupied property should be increased.
Lastly, there is no harm in re-visiting the old wisdom and re-evaluating its relevance in present times. Reinstatement of abolished provisions like standard deduction, 80L deduction for bank interests could bring much needed cheer to the salaried man. One should not forget the senior citizens who have been the catalysts of the current economy. Increasing basic exemption limits, lowering tax rates and exempting pension income are ways to show gratitude to them.
The authors are senior tax professionals with Ernst & Young.