The Government is scheduled to present its first full Budget on July 5. Every individual and corporate has high hopes from this Budget regarding tax reliefs. The Government needs to balance its fiscal and current account deficit before deciding upon the tax incentives to be provided to the stakeholders.
I expect the Government to focus more on boosting investments and savings in the economy. The Finance Minister should increase the deduction under section 80C of the Income-Tax Act for tax-related investments from ₹1.5 lakh to ₹2 lakh. At the same time, she should boost savings among individual taxpayers by increasing the savings interest deduction under section 80 TTA of the IT Act from ₹10,000 to ₹20,000 at least. These measures will be far more effective in serving the dual purpose of providing tax reliefs as well as boosting savings and investment.
In its interim Budget in February 2019, the Government had come up with a major relief to individuals with taxable income up to ₹5 lakh by exempting them from paying taxes. Over and above this, if the Government further plans to increase the basic exemption limit from ₹2.5 lakhto 3 lakh for everyone, then it needs to balance the tax revenue loss due to these incentives from other sources such as increasing the surcharge on the ‘super-rich’ class or by forgoing certain other tax benefits as happened with the withdrawal of LTCG exemption under section 10(38) of the Income-Tax Act.
Further, the Government should provide tax incentives to salaried class specially the women employees. An increase in LTA exemption to three out of four years instead of the current two years or increasing the standard deduction limit higher from ₹50,000.
On the corporate front the Government is expected to keep the corporate tax rates unchanged. The Finance Minister should incentivise companies to create more jobs as well as reskill the existing workforce. This can be done by introducing fiscal incentives for corporates such as 150 per cent deduction of salary paid in the first year and 120 per cent in second year to the new workforce employed in the current financial year over and above a minimum threshold. Accelerated tax incentives are expected to be provided for skill development programmes. These will help tackle the problem of the high unemployment rate of around 7.6 per cent in the country.
The Government is expected to provide more incentives to boost entrepreneurship and start-ups in the country. Tax benefits are expected for venture capitalists as well as incubation centres to promote new and budding start-ups. Further, current benefits for scientific research and investment in research and development under Section 35 of the -IT Act should be continued. The weighted deduction of 150 per cent of in-house research and development has a sunset clause and 100 per cent of such expenditure will only be allowed from AY beginning April 21. The Government should extend the sunset clause on weighted deduction under this section.
On the tax administration front, the Budget is expected to provide a roadmap for 100 per cent e-tax assessment facility and measures are expected to curb physical interaction of the assessing officers and tax assesses. The Government is expected to bring in tight reforms to curb tax evasion by increasing the penalties under the I-T Act as also increasing fines for non-filing of I-T returns and suppression of income.
Overall with expected incentives and reliefs, the first Budget of this Government should be less taxing for the common man and middle class. The Budget should aim at making the country more investor-friendly and boosting investment in the economy.
(The writer, a Chartered Accountant and CFA, is currently a student of PGP Class of 2020 at the Indian School of Business.)