If people across classes and professions could have one common wish from Finance Minister Arun Jaitley fom his upcoming budget, it would be lower taxes. There have been countless ideas on how the government could lower taxes in Budget 2017. While some propose an increase in the income exemption limit of Rs 2.5 lakh, others talk about widening the tax slabs to increase the limits to which the highest tax rate applies. The government has a tough task on hand, balancing tax collections to make way for more tax benefits.
Here are some revenue neutral measures that the government could take in this budget to make taxpayers happy:
Extend time limit allowed for completion of construction of house property
Tax benefits on home loan can be claimed only after construction of the house is complete. Construction must be completed within 5 years from the end of the financial year in which loan is taken. Earlier this period was 3 years. However, hapless buyers continue to suffer at the hands of builders who delay projects. And taxpayers lose the tax benefit on interest if construction is not finished within 5 years. The government must extend this period or completely do away with the time limit for buyers who are purchasing their first house property.
Clarity on NPS withdrawals
PFRDA and the government have been working hard to popularise NPS. Additional tax benefits have been announced in the past on deposits made in NPS. There have been a host of changes, allowing higher equity allocation, e-enrolment and choice of record keeping agencies. However, the government has not yet clarified how withdrawals from NPS tier II account will be taxed. While with tier I account is mandatory to claim tax benefits, one can also invest in tier II account which is a voluntary investment account. Withdrawals from tier I are allowed post retirement, there are no such retrictions on tier II accounts. Investments in tier I are limited to Rs 50,000 for claiming tax benefits for self-contributions. Investors can benefit from tier II account investing which allows flexibility regarding withdrawals. We hope the government will specify withdrawal tax for NPS tier II accounts.
Reduce TDS rates on interest income
TDS rates on interest income should be brought down to 5% instead of 10%. This was also recommended by the Eshwar committee which was set up for reform in taxes. Taxpayers who take benefit of section 80C usually have a tax outgo that works out to less than 10% of their taxable income. For example, a person with an income of Rs 7,00,000, who takes full advantage of section 80C can reduce taxable income to Rs 5,50,000. On this income a minimum exemption of Rs 2,50,000 is allowed, remaining income of Rs 2,50,000 is taxed @ 10% i.e. Rs 25,000. On the remaining income of Rs 50,000, tax shall be @20% which is Rs 10,000. Therefore, effectively, a tax of Rs 35,000 (without cess) has been paid on income of Rs 7,00,000 which is at the rate of 5%. If this person earned interest income too, TDS would have been deducted @ 10% and he’ll most likely have to seek a refund. This scenario may be especially true for senior citizens who have large interest income. Reducing TDS rates will reduce refund processing for the government and will be a relief to taxpayers as well.
E-verification for NRI tax return
The income tax department does not allow e-filing of returns from outside India. Most NRIs need help from someone back home to prepare and file their tax returns. However, the income tax department must allow some means to NRIs so they can e-verify their tax returns. Many of them have a hard time sending physical ITR-Vs. The government can allow digital ways for NRIs to verify their tax returns directly from outside India.
The author of the article is Archit Gupta, Founder & CEO ClearTax.com