Earlier, around september 2019, India’s Finance Minister, Nirmala Sitaraman had slashed the corporate tax rate. Thus, the common man’s expectation from the 2020 Budget has increased. The common man is now looking forward to changes that can help him or her increase disposable income.
Expectation 1: Relaxation of personal income tax slab rates
India is expecting the FM to relax the tax slab rates for personal income. In the current scenario, individuals with income of up to Rs 5 lakh (after considering rebate) do not attract any taxes. That said, this does not mean that the basic exemption limit has increased from Rs 2.5 lakh to Rs 5 lakh. Tax department stats revealed that in October 2019, more than 97 lakh individual taxpayers filed ITRs for income between Rs.5-10 lakhs. Furthermore, the stats showed that revenue collected from these taxpayers was more than Rs.45000 crore.
The FM may consider increasing the common man’s disposable income by raising the minimum tax slabs, especially with growing inflation and economic slowdown. That said, the FM will ensure that this does not affect the government’s direct tax revenue.
Expectation 2: Relaxing tax provisions for house property
The current laws limit deduction of home loan interest, including any pre-construction interest that you can claim in five equal instalments, for a self-occupied property valued up to Rs 2 lakh. Moreover, as per section 80EEA, which was introduced in FY20 provides home buyers with additional deduction of Rs 1.5 lakh for interest payment on purchase of a home with the stamp duty value that does not exceed Rs. 45 lakh. You can claim this deduction over and above the Rs. 2 lakh deduction for your home loan interest
In this Budget 2020, the government may allow individual buying a home for the first time in Tier II cities to avail a certain portion of this additional deduction of home loan interest. However, with the current real estate pricing scenario in the metro cities, the restriction placed on the home’s value should be removed, allowing individuals to claim higher deduction. This must be extended to all the Indian taxpayers buying their first home in India, regardless of the home’s cost and size. This will definitely boost the Indian real estate sector while ensuring that the buyers’ aspirations are not compromised.
As per the Finance Act, 2017, individuals can set-off the total current year loss from a home purchase against their current year’s income (except capital gains and speculation income) for Rs. 2 lakhs. They can carry forward any remaining losses to eight tax years. Moreover, the individuals can set-off the carry-forward loss only from the income from house property category. This clearly restricts the set-off for individuals. Thus, the loss carried-forward remains unutilised and lapses. The interest component of home loan repayment plays a crucial role owing to its substantiality in the initial years of the repayment of home loan. Owing to these changes in FY18, there has been a substantial increase in tax outflow, especially for the middle class taxpayers of India who own only their self-occupied homes.
Expectation 3: Increase in tax deductions
As we all are well aware, the current tax deduction limit for individual tax payers in India is Rs.1.5 lakhs under section 80C. These are allowed for certain investments such as NPS, ELSS tax savings funds, and PPF. The last enhancement of this limit was seen way back in FY15 from Rs.1 lakh. Therefore, individual tax payers of India feel this is the right for the FM to at least Rs.2.5 lakhs.
Earlier, individuals could avail deduction for investment on infrastructure bonds under section 80CCF to the extent of Rs. 20,000 for FY11 and FY12. However, subsequently, the government withdrew the same. In the Budget 2020, the government can consider re-introducing the deduction for investment in infrastructure bonds for up to Rs.50000. This could have dual benefits to tax payers. On one end, this would encourage individuals to invest in these instruments. On the other end, the government would be able to access funds for meeting their development needs for India.
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