Tax breaks can revive economy
The global crisis has affected the Indian economy too. In the midst of this crisis, the implementation of the Direct Tax Code (DTC) was postponed beyond the proposed date of April 2012.india Updated: Jan 20, 2013 20:53 IST
The global crisis has affected the Indian economy too. In the midst of this crisis, the implementation of the Direct Tax Code (DTC) was postponed beyond the proposed date of April 2012. While the finance minister did his bit in the last budget by marginally increasing tax slabs to align them with the ones proposed in the revised DTC, more could still be done to revive the sagging economy and assuage the financial burden on individual tax payers.
One way is to encourage households to spend more on essentials as well as on aspirational purchases. In the time of high prices, this may be achieved through providing tax breaks and thereby increasing disposable incomes. In the upcoming budget, the finance minister could consider introducing new tax breaks and also review the limits set for existing tax breaks
The original draft DTC 2009 proposed tax exemption for income up to Rs. 1.6 lakh, a 10% tax rate for incomes up to Rs. 10 lakh, 20% for incomes up to Rs. 25 lakh and 30% for income beyond that.
However, the revised DTC in August 2010 proposed tax slabs which match those applicable in the 2012-13 financial year.
In the budget for 2013-14, the finance minister can consider increase in the tax slabs such that the tax payers are benefited while the hit to the exchequer is not significant.
The tax exemption limit should be raised to Rs. 3 lakh, thereafter a 10% tax on income up to Rs. 10 lakh, 20% on income up to Rs. 20 lakh and 30% beyond this. The education cess could be abolished.
The erstwhile standard deduction for salaried employees could be reintroduced at a flat rate not exceeding Rs. 75,000 per annum. Since medical cost are increasing, the exemption limit on reimbursement of medical expense could be increased from Rs. 15,000 to Rs. 50,000 - as proposed in the DTC 2010.
The deduction for the interest paid on self-occupied property has remain unchanged for the last 12 years at Rs. 1.5 lakh, despite the steep inflation over the years. This limit could be increased to Rs. 5lakh - a move that could increase the demand for housing units as well, and have a multiplier effect on the economy.
The limit for various deductions under section 80C has been constant at Rs. 1 lakh over the past decade. This should be increased to at least Rs. 3 lakh, and will promote investment and inculcate financial discipline.
Deduction for investment in infrastructure bonds u/s 80CCF, which was capped at Rs. 20,000 for 2011-2012, was scrapped. This deduction could be reintroduced at a proposed limit of Rs. 1 Lakh.
The increasing cost of living has also affected the cost of education. A separate deduction limit could be granted of Rs. 50,000 per child for amounts spent on education.
In the midst of political, social and economic crises across the nation, the common man has a lot of expectations from the finance minister. Hopefully, he will introduce significant tax breaks to kickstart the economy.
(The writer is partner, Deloitte Haskins & Sells)