Budget 2018: A Practical Aspect to Common-Man's Income Tax

With just one day to Budget 2018, a lot speculations and expectations are already floating in the air of India. After being disappointed for last couple of times, the hope of common man and salaried people is very high from the government this time. 2018 also being a big year in terms of elections, the BJP government will try to give their best shot in the Budget 2018. Nearly eight states’ assembly elections are scheduled in 2018 and the budget will also be a deciding factor for the upcoming Lok-Sabha election. Here is my perspective on the favourite part of Budget 2018: the income taxation part. The assumptions are based on an optimistic and practical point of view.

Change in Tax Slab:

Budget 2018 is most likely to see a dramatic tax slab change in the desperate attempt by BJP government to please the common man. It’s high time for the same after the last year’s demonization, GST implementation and changing economic environment of the country. Here is an ideal tax slab projections depending on current scenario:

The above estimation is for Indians below the age of 60 year. For senior citizens, the slab may change in a proportionate manner.

Surcharge:

Tax Deduction Limit under 80C:

The current deductions limit under 80C is 1.5 lakh which is expected to change to 2 lakh at least considering high deposits in banks post demonetization.

Home Loan Limit:

Under Section 24B of the Income Tax Act, interest paid up to Rs. 2 lakh on housing loan and up to Rs. 30,000 on home improvement loan is allowable as deduction from your taxable income. Under Section 80EE, an additional deduction of Rs. 50,000 is available over and above the limit of Section 24B on interest paid on home loans if the person is buying a house for the first time (the person must not own any other residential property on the date of sanction of loan). However, to avail the benefit of this section the value of the property must be below Rs. 50 lakh and the loan amount should not exceed Rs. 35 lakh.

In current scenario, an average home in a metro Politian city costs around 40 lakh. Considering 11% interest and 6 years of repay period(as per income tax limit), the annual interest comes around 5.8 lakh, where as the limit is only 2 lakh. Practically, the limit should be raised to at least 3.5 lakh per annum.

HRA :

The calculated HRA limit is 40% of Basic or 50% of Basic (in case of Metro cities) or 10% less basic of paid rent; whichever is lower. Only four cities are considered metro cities: Mumbai, Delhi, Kolkata and Chennai. The rental charges for a house in cities like Bengaluru or Hyderabad or Pune are not less in contrast to four metropolitan cities. Therefore, the government should also include these expensive cities in the category of higher exemptions for HRA. The irony is Chennai is listed as Metro city where as Bengaluru isn’t. In reality, the cost of living at Bengaluru is way higher than Chennai. I have lived at both the cities in 2017.

Medical Allowance:

The current limit for Medical allowance is INR 15,000 per annum which hasn’t been revised for around 15 years in a row. This is high time to raise the limit to at least to INR 30,000.

Employee Bond:

A lot of companies now have a bond structure where the employee needs to pay a lump sum amount to the company in case she/he isn’t able to serve the company a minimum no. of years. This amount isn’t accounted for tax deductions. It should be included as tax deductions as this is a deduction from employee’s total income in the year.

LTC:

Now one can claim LTC twice in 4 years. This can be increased to three times in four years.

Children education and hostel fees:

The current deductions as mentioned below:

• Children Education Allowance: Rs 100 per month per child up to a maximum of 2 children.
• Hostel Expenditure Allowance: Rs.300 per month per child up to a maximum of 2 children.

Where on earth would a INR 300 per month hostel allowance per child is a feasible amount? The education allowance should be revised to at least INR 1500 per month and hostel expenditure to be at least INR 3000  a month per child.

Interest paid on bank deposits:

Considering high deposits in bank accounts post demonetization, the government should increase current threshold for tax deduction on interest paid on bank deposits from INR 10,000 to INR 20,000 at least.

If the government is increasing the tax deductions, then will obviously try to balance it out in corporate tax or surcharge or other taxing mediums. But last couple of years, the tax collection has increased at more than 15% and there is an addition of nearly 10 million new tax payers post demonetization.

The government can play that as a leverage by giving benefit to the common man to increase the good will of the BJP government and to make sure a clean sweep in next elections.

Though these aren’t an exhaustive suggested list, but these are couple of points that came to my mind on a quick thought. Please do let me know in comment, what the practical case is for you and what changes you would like to see this Budget 2018. Hope, people will get to see the much-hyped "Ache Din" this time at least.