06 Feb 2016 20:29 IST

Budget 2016: What it could hold on the personal tax front

Individuals are hoping for incentives on online transactions, contribution to national pension scheme

Apart from the general expectations from a Budget in relation to tax rates and deductions, individuals are also looking forward to beneficial amendments in relation to certain items which the Government has been focusing on, such as incentives for online transactions, contribution to National Pension Scheme.

The 2015 Budget did not bring any changes to the tax rates for individuals except for increase in the rate of surcharge. This year, as is the case with the rising expectations before every Budget, individual tax-payers expect at least a marginal increase in the exemption limit and widening of tax slabs. An increase in the limit of deduction available for certain investments and payments under Section 80C of the Income-tax Act would also be welcome.

The deduction available to salaried employees for conveyance allowance was increased from ₹800 to ₹1,600 in the 2015 Budget. However, there are also various other deductions available to salaried individuals, many of which do not provide any actual benefit to the individuals, for example, a deduction of ₹100 per month per child is allowed as children education allowance. Individual taxpayers are hoping the limits for these deductions would be increased. Or the Government may introduce an alternative method of deduction / relief such as a standard deduction.

Loan interest exemption

With regard to house property, interest on housing loans taken to buy property that is let out is allowed without any limit. However, interest in relation to a loan taken for acquisition or construction of a self-occupied property is allowed only up to ₹2,00,000. This limit may also be increased or removed to allow deduction similar to that in the case of let-out (rented) property.

While the above have been general expectations from a Budget over the years, individuals are also looking forward to some beneficial amendments in relation to certain items which the Government has been focusing on.

Deduction at the contribution stage is available for payments to National Pension Scheme (NPS) up to specified limit. However, amounts received at the time of withdrawal from NPS are taxable. This is a dampener. To make the NPS more popular, the Government may bring the taxability of the scheme in line with that for the Provident Fund by exempting NPS withdrawals from being taxable. An EEE (Exempt on contribution/ Exempt on accumulation and Exempt on maturity) method of taxation would make the NPS more attractive than the EET (Exempt on contribution/ Exempt on accumulation and Taxable on maturity) method.

Card transactions

The Finance Minister in the 2015 Budget mentioned that one way to curb black money was to discourage transactions in cash. The Finance Minister also proposed to issue several measures that will incentivise credit or debit card transactions, and disincentivise cash transactions. Measures in this regard are yet to be announced. It remains to be seen if the Finance Minister would introduce any such measures in the up-coming Budget.

It was also reported that the Government was considering tax exemptions in relation to stock options given to employees by start-up companies. Given the popularity of ESOPs, particularly with start-ups, and the Government’s initiatives to encourage such entrepreneurship, the Government may introduce amendments to simplify the taxability of ESOPs to facilitate tax compliance by employees and employers.

While the Budget is expected to be in line with the Government’s objectives of curbing black money and encouraging entrepreneurship, we would need to wait until February 29 to know what incentives and measures await us.

(The writer is a senior tax professional, EY India. The views are personal.)