Salaried class looks for more tax benefits in upcoming Budget

NEW DELHI:  Salaried people have big expectations from the upcoming budget, the primary being relief in taxes. In India, the personal income tax starts from 5% and goes up to 42.74% including surcharges and cesses. India’s personal tax rates are much higher than other countries like Hong Kong (15%) Sri Lanka (18%), and Singapore (22%).

Revamping tax slabs
Individuals have a choice to opt either for the old tax regime, which has exemptions and standard deductions or the new concessional tax system without any exemptions or standard deductions.Both these systems have created a lot of complexities and confusions. 

“Old taxation is much better than the new one and worldwide these basic tax exemptions are given to the taxpayers” says CA Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI).  Former revenue secretary Tarun Bajaj recently told TNIE that the new tax regime has been a non-starter and it needs a relook. 

“Somebody with an income of R7 lakh in the old regime does not have to pay any taxes, but in the new regime you have to pay taxes once you cross the threshold of R2.5 lakh,” says the former revenue secretary.  Bajaj suggests that for the new tax regime to attract more taxpayers, it should consider raising the threshold for paying taxes to R7 lakh. According to experts, the minimum threshold of R10 lakh for 30% tax is very low.

Exemptions are good
The higher tax rate of 42.74% is imposed on those who have annual income of R5 crore and above, and it seems easonable as compared with other countries like the US, Canada, etc but it is to be noted that these countries have social security schemes like medical and pension for every citizen of their country unlike India. 

In India, retirement savings are fuelled only by tax exemptions and standard deductions. According to experts, it is important to provide social securities by way of exemptions and standard deductions. Taxpayers don’t get anything at the time of retirement except these social securities that are created by way of exemptions. 

“Long life savings by contribution to Public Provident Fund and National Savings Certificates etc are the financial safety nets created for the citizens. So, if the exemptions are withdrawn like in the new tax regime, then people will be left without social security. If there are no tax exemptions for life insurance policies then people will not buy and they won’t have a security in case they land up in some difficulty,” says Ved Jain.

It has been a long -pending demand to increase the deduction limit (under section 80 C) from R1.5 lakh to R3 lakh, given the level of inflation.

Need for simplification
There is a need to simplify the taxation process as multiple provisions in the tax law also complicate the system. The tax compliance will increase with the simplicity in the taxation process. According to the confederation of Indian industries (CII), wide variety of TDS rates creates confusion for the taxpayers, increases compliance burden and gives rise to characterisation disputes. For instance, it is difficult to distinguish between fees for technical services (2%) and fees for professional services (10%).  

“With all TDS information getting captured in Form 26AS/AIS of the deductees, it is easier for the government to collect the balance taxes from the resident taxpayers. Hence, the government may consider laying down a roadmap for reducing the disparity in TDS rates by having only two or three categories of payments and a small ‘negative list’ of payments which will not be liable to TDS,” CII said in its prebudget recommendations.  

“Indirect and direct taxes are with the Central Government. Collecting information by way of TDS is not justifiable. Last year, the centre introduced 194Q and then in the last budget they came up with 194R, all this has created a lot of confusion. All this information is already available in GST return so there is no need for this TDS obligation,” Ved Jain added.

Meanwhile, according to ASSOCHAM, at present, a fixed standard deduction amounting to R50,000 is allowed while computing income under head Salary, irrespective of the amount of income earned. 
It has suggested to the government that deduction should be made allowable on a pro rata/ percentage of income basis, in order to effectively serve the purpose of a deduction towards incurring of routine nature expenses.  

Tax travails

India’s personal tax rates are higher when compared to Hong Kong (15%), Sri Lanka(18%), Bangladesh (25%), and Singapore (22%)

The effective tax rate on individuals earning more than Rs 5 crore in India is 42.74%

Indians are dependent on tax exemptions, deductions for retirement savings

At present, there are a lot of complexities due to new and old tax regime

Experts say there is a need to simplify taxation process

Experts call for fewer rates for  Tax Deducted at Source (TDS) 

NEW DELHI:  Salaried people have big expectations from the upcoming budget, the primary being relief in taxes. In India, the personal income tax starts from 5% and goes up to 42.74% including surcharges and cesses. India’s personal tax rates are much higher than other countries like Hong Kong (15%) Sri Lanka (18%), and Singapore (22%). Revamping tax slabs Individuals have a choice to opt either for the old tax regime, which has exemptions and standard deductions or the new concessional tax system without any exemptions or standard deductions.Both these systems have created a lot of complexities and confusions.  “Old taxation is much better than the new one and worldwide these basic tax exemptions are given to the taxpayers” says CA Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI).  Former revenue secretary Tarun Bajaj recently told TNIE that the new tax regime has been a non-starter and it needs a relook.  “Somebody with an income of R7 lakh in the old regime does not have to pay any taxes, but in the new regime you have to pay taxes once you cross the threshold of R2.5 lakh,” says the former revenue secretary.  Bajaj suggests that for the new tax regime to attract more taxpayers, it should consider raising the threshold for paying taxes to R7 lakh. According to experts, the minimum threshold of R10 lakh for 30% tax is very low. Exemptions are good The higher tax rate of 42.74% is imposed on those who have annual income of R5 crore and above, and it seems easonable as compared with other countries like the US, Canada, etc but it is to be noted that these countries have social security schemes like medical and pension for every citizen of their country unlike India.  In India, retirement savings are fuelled only by tax exemptions and standard deductions. According to experts, it is important to provide social securities by way of exemptions and standard deductions. Taxpayers don’t get anything at the time of retirement except these social securities that are created by way of exemptions.  “Long life savings by contribution to Public Provident Fund and National Savings Certificates etc are the financial safety nets created for the citizens. So, if the exemptions are withdrawn like in the new tax regime, then people will be left without social security. If there are no tax exemptions for life insurance policies then people will not buy and they won’t have a security in case they land up in some difficulty,” says Ved Jain. It has been a long -pending demand to increase the deduction limit (under section 80 C) from R1.5 lakh to R3 lakh, given the level of inflation. Need for simplification There is a need to simplify the taxation process as multiple provisions in the tax law also complicate the system. The tax compliance will increase with the simplicity in the taxation process. According to the confederation of Indian industries (CII), wide variety of TDS rates creates confusion for the taxpayers, increases compliance burden and gives rise to characterisation disputes. For instance, it is difficult to distinguish between fees for technical services (2%) and fees for professional services (10%).   “With all TDS information getting captured in Form 26AS/AIS of the deductees, it is easier for the government to collect the balance taxes from the resident taxpayers. Hence, the government may consider laying down a roadmap for reducing the disparity in TDS rates by having only two or three categories of payments and a small ‘negative list’ of payments which will not be liable to TDS,” CII said in its prebudget recommendations.   “Indirect and direct taxes are with the Central Government. Collecting information by way of TDS is not justifiable. Last year, the centre introduced 194Q and then in the last budget they came up with 194R, all this has created a lot of confusion. All this information is already available in GST return so there is no need for this TDS obligation,” Ved Jain added. Meanwhile, according to ASSOCHAM, at present, a fixed standard deduction amounting to R50,000 is allowed while computing income under head Salary, irrespective of the amount of income earned.  It has suggested to the government that deduction should be made allowable on a pro rata/ percentage of income basis, in order to effectively serve the purpose of a deduction towards incurring of routine nature expenses.   Tax travails India’s personal tax rates are higher when compared to Hong Kong (15%), Sri Lanka(18%), Bangladesh (25%), and Singapore (22%) The effective tax rate on individuals earning more than Rs 5 crore in India is 42.74% Indians are dependent on tax exemptions, deductions for retirement savings At present, there are a lot of complexities due to new and old tax regime Experts say there is a need to simplify taxation process Experts call for fewer rates for  Tax Deducted at Source (TDS)