Narendra Modi led BJP Government may give relief to Tax Payers in Budget – 2014
Imagine if the basic tax exemption is raised to Rs 3 lakh (additional Rs 50,000 exemption for women and senior citizens), interest on bank deposits is made tax free and there is no tax on pension if you are over 60. The BJP had promised all this and more in its 2009 manifesto.
This time round the party toned down its promises, couching them in vague statements without mentioning specific measures. Its 2014 manifesto said that the UPA government has “unleashed tax terrorism” and promised that the BJP will “provide a non adversarial and conducive tax environment, and rationalise and simplify the tax regime”.
Even so, experts believe that the tax outgo of lower and middle income earners may come down this year. “Given the current economic situation, there is not really much scope for the government to cut taxes. But the public is reeling under high inflation and some relief might be on cards for lower and middle income groups,” says Kuldip Kumar, executive director, PwC India.
“Taxpayers can expect widening of tax slabs, rationalization of certain exemption limits and raising the deduction limit under Section 80C,” says Divya Baweja, partner, Deloitte Haskins & Sells. “The tax deduction under Section 80C should be raised to Rs 2 lakh,” says Sudhir Kaushik, CFO and cofounder of e-filing portal Taxspanner.com. He suggests the additional Rs 1 lakh investment be specifically reserved for infrastructure bonds and retirement products.
The big challenge before the Narendra Modi government would be to marry these expectations with the reality of the shortfall in tax collections. Though direct tax collections exceeded the revised target of Rs 6,41,835 crore in 2013-14, they were still about Rs 23,000 crore below the original target. If the government wants to cut taxes or enhance deductions this year, it will have to balance the foregone tax by boosting collections and ensuring stricter compliance.
For taxpayers, this means greater scrutiny of their income. The CBDT has already sounded a warning by putting salary slips under the scanner. In October 2013, salaried taxpayers who sought tax exemption for HRA of more than Rs 8,333 a month were asked to mention the PAN of their landlord. The new tax forms notified last month seek a break-up of the exempted income received and capital gains earned by an individual.
Mercifully, most tax experts don’t think the government will widen the service tax net or increase the rate. “There is no scope for further increasing the tax burden on services as they are already struggling with a high tax burden and the impact of the economic slowdown,” says D.K. Srivastava, chief policy advisor, EY. Others point out that widening the service tax or increasing its rate will have a cascading effect on inflation. “Any increase in indirect taxes will hit the rich and poor with equal force,” says Kuldip Kumar of PwC.
The tax experts and the industry are hoping that the BJP will keep its manifesto promise of providing a non-adversarial tax regime. “With more than Rs 4 lakh crore locked in income tax disputes alone, the rising number of disputes is a serious concern to both the industry and the government. The industry hopes the new government would adopt non-adversarial policies,” says Srivastava of EY.
Tax professionals are also hopeful that some of the outdated and iniquitous tax laws will be thrown out. “Self employed professionals should also be able to claim HRA exemption like salaried taxpayers. Right now the exemption is capped at Rs 2,000 per month,” points out Kaushik of Taxspanner. com. He also says that tax laws should not be changed frequently because it creates confusion without adding any significant benefit.
The Direct Taxes Code introduced in 2009 and then revised in 2010 could not see light of day because the UPA constituents had divergent views on the proposals. The thumping majority with which the NDA has come to power and the fact that BJP alone has crossed the 272-mark indicates that the new government will not face such problems.
Besides, the concerns of prime minister Narendra Modi would be very different now. So, the Goods and Services Tax, which he had opposed as chief minister of Gujarat, might soon come into force.