Mumbai: The Narendra Modi-led National Democratic Alliance government gets ready to prepare its last regular Budget before the general election in 2019, middle class can hope for a big relief as the finance ministry is contemplating to hike personal tax exemption limit and tweak the tax slabs, according to multiple sources. Prime Minister Narendra Modi, during the annual conference of tax officers in September 2017, had said that the Income Tax Act, 1961 was drafted more than 50 years ago and it needed to be redrafted. While we will have to wait for Finance Minister Arun Jaitley to reveal the exact contours of the Budget, here are top 10 ways in which Arun Jaitley can increase your income this year.
1) Income tax limit
The proposals before the finance ministry is to hike the tax exemption limit from the existing Rs 2.5 lakh per annum to at least Rs 3 lakh, if not Rs 5 lakh. In the last Budget, Finance Minister Arun Jaitley left the slabs unchanged but gave marginal relief to small tax payer by reducing the rate from 10 per cent to 5 per cent for individuals having annual income between Rs 2.5-5 lakh.
2) Hike in investment in tax-saving schemes
At present, deduction of a maximum Rs 1.5 lakh is allowed to all individual taxpayers for investing in various tax saving schemes, such as EPF, PPF, life insurance schemes, National Savings Certificates, ELSS, etc. under section 80C.
The increase in Section 80C limit will allow individuals to save more. An Economic Times report said that section 80C could see an increase in its limit from the existing Rs 1.5 lakh a year to Rs 2 lakh or possibly even higher in Budget 2018.
3) Increase in limit for medical reimbursements, transport allowances
It is also likely that limits for certain tax free reimbursements as well as allowances to salaried taxpayers, such as Rs 15,000 per annum for medical reimbursements, Rs 1,600 for transport allowance, etc. may be raised to meet the increased cost of medical and transportation.
4) Corporate tax rate cut
At present, the biggest hope is in direct taxes, particularly after US President Donald Trump made a massive cut in corporate tax from 35 to 21 per cent and income tax rates to create jobs.
Keeping an eye on the US corporate tax reforms, one would expect a reduction in headline corporate tax rates across the board in the upcoming Union budget to at least 25 per cent.
5) Clarity on Bitcoin taxation
The government should already talk about the tax implications of investing in Bitcoins and also whether this will require disclosure in tax returns forms or not.
It is expected that Finance Minister Jaitley will make a mention of it in the forthcoming Budget.
6) Health insurance policies
Health insurance premiums could get larger tax breaks, as the finance ministry has asked the apex body of general insurance firms to examine the proposal for the Budget 2018-19.
Under the current law, anyone who buys a medical insurance policy can get a tax waiver of up to Rs 50,000 per year.
The tax benefit covers parents, self, spouse or dependent children.
7) Tax on equity investments
The finance ministry is actively considering the introduction of tax on long term capital gains (LTCG) from equities or raise the holding period for long-term tax exemption from one to three years in the Budget, according to multiple reports.
8) Abolish dividend distribution tax
The finance ministry is likely to do away with the dividend distribution tax (DDT) in the upcoming Budget.
In its pre-Budget expectations, EY said dividend distribution tax has become burdensome for corporates due to various factors such as high rate, litigation on disallowance and hence the return on capital employed has significantly diminished.
Industry body CII has also sought rationalisation of the dividend distribution tax rate to 10 per cent in the upcoming Budget to encourage participation of different stakeholders in the country’s financial markets.
9) NPS corpus tax free
The finance ministry may consider granting further tax incentives or exemptions to the National Pension System (NPS) maturity corpus to make it more attractive. So far, only 40 per cent of the maturity amount is tax-free, but if in the forthcoming Budget the finance minister decides to increase it to 60 per cent, NPS will get a much-needed impetus.
10) Tax free gratuity for employees may become a reality soon
Payment of Gratuity Amendment Bill 2017 is likely to be passed in the forthcoming Budget session. This will then make formal sector workers eligible for tax free Rs 20 lakh gratuity.