Budget 2016-17 - Income Tax & some other comments

Introduction:

This year’s overall  Union Budget is  just  like an  election budget- trying to please more of  poor voters-nothing is wrong in it but schemes launched for them must be strictly monitored / implemented  and benefits  must reach  in reality to them –as in the  past it is proved that a very small amount of such benefits reach to them.  Budgetary allocations for Roads and Electricity are in the right direction. The objective of doubling farmer’s income in five years is doubtful but a thought on this direction is good.  Huge investments in infrastructure are welcome .But when it shall see the light of the day is a policy to wait and watch.

Service Tax:

Service tax was 5% when introduced first time about two decades ago. This year’s an increase by 0.5% for Kirishi Kalyan cess is unwarranted.  This motive can be achieved by changing budgetary allocation. Now its total burden of 15%.is too much.  To the same tune why all deductions under Income Tax and exemption limits etc are not increased to such a magnitude? Since practically it is recovered from consumers / citizens, therefore most individual’s net inflow of cash shall be less. (The worst hit shall be from middle class as the relief of additional Rs. 3000 in income tax for persons having total income up to Rupees Five Lakhs shall be offset from their total income tax saved as they shall too be required to pay more on account of an increase in service tax rate for their day today necessary expenditure).. The basic exemption is untouched at a very low amount of Rs. 10 Lakhs – since long prevailing time; it must be raised to at least to Rs. 25 Lakhs.

Income Tax:

Employees Provident Fund (EPS):

It is most shocking that only 40% of the corpus in the EPF created from Contributions made from April 1, 2016 will be tax free. The Finance Minister has hit hard on salaried persons. This provision must be dropped.  This kind of Rule after scrapping it –must be made in National Pension Scheme (NPS) to make it at par with EPF.

Senior Citizens:

It is so unfortunate that limits of basic exemptions are not raised even for Senior Citizens. Government’s this kind of attitude for Senior citizens is shameless, throughout their life they pay taxes- kiya government martey dam tak tax leti rahegi? Already most of them are financially dependent on their children –just because of tax on their incomes from past savings-most of them have no regular salary / business income etc (or it is too meager to make both ends meet-and government makes them pay taxes too. The present basic exemption of Rupees Three Lakhs is not enough for them to survive with dignity.

Corporate Rate and MAT:

The reduction in corporate tax rate by 1% is a joke. And for simplification-Minimum Alternate Tax (MAT) should be abolished. Some concessions in corporate tax for various schemes etc are proposed but by keeping alive MAT zero tax is not allowed.  

Rent Deduction

Rent Deduction raised from Rs.2000 to Rs.5000pm for those who are not getting HRA is inadequate as almost all over the country rents are skyrocketed. Raise this limit to at least Rs. 20,000 pm

Home Loans interest

Home Loans interest for those who have no house of their own of Rs. 50,000 up to Rs. 35 Lakhs loan is welcome but other conditions like total value of house should not be more than Rs. 50 Lakhs will deprive most house buyers as properties are now sold in Crores across the country.

Tax Deduction at Sources (TDS):

Rates of Tax Deduction at Sources (TDS) are rightly modified –reduced. But not for the professional whose low limit of Rs. 30000 is maintained -. This must be raised to Rs. One Lakh at least.  And TDS of all kinds must be abolished for Senior Citizens especially for non-business / non-professional Senior Citizens.

Presumptive taxes:

Small businessmen (with a turnover up to Rs. 2 Crores)  and professionals-advocates / lawyers, architects, chartered / cost  accountants, company secretaries   etc who have gross receipts up to Rs. 50 Lakhs   are well taken care from keeping accounts –Professionals  can now pay  presumptive income of 50 % and business men of 8% . But 50 % for professionals is too high a rate as it is well known economic principle that as the volume grows profit increases as fixed cost remains same and many other variables -day to day items of expenditure do not increase in proportion to an increase in volume of trade and receipts. In view of this fact, much lower rate of tax than 50% is the need of the hour. Even as per earlier Scrutiny guidelines the rate was much lower. I suggest to lower down it - with suggestive slabs – Gross receipts up to Rs.10 Lakhs-10%; Between Rs.10 to 20 Lakhs-20% ; Between Rs.20 Lakhs to Rs. 30 Lakhs-30% ; Between Rs. 30 Lakhs -40 Lakhs -40% and above Rs. 40 Lakhs -50% ; Or have a flat rate of 30% only!

Also if rates are not changed i.e., lower down from 50% tax rate it may lead to sending of unnecessary scrutiny notices to professionals in future  as their actual income in lower gross receipts cases shall be much lower always in actual practice. (Those who declare their annual income below 50% by maintaining proper accounts).

 

Tax on Super Rich:

The tax burden on Super rich persons -with Rupees One Crore and above is also on higher side. Remember only rich class contributes much more than poor and middle class by their huge investments along with the government  in infrastructure to run the country economically well off is commendable.  Yes they must be taxed at higher rates but within reasonable limits. Their savings from tax savings are ploughed back into back in economic growth.

Onetime payment for Black Money:

Amnesty scheme to unearth black money by paying 45% tax is welcome.  The government failed to get foreign account black money. On Domestic sector too it shall fail in overall picture. Most politicians have black money and they won’t come up and declare here too. Even others who did not pay taxes in the past at 30% will not find it an attractive rate –lower down to 35% to attract them.

Some of the desired areas not touched in this Budget are:

Educational Institutions:

All educational institutions must not be required to file income tax returns etc. as at present under section 10 they are required to claim exemption and file income tax returns and are required various other formalities under the Income Tax Act.

Deduction under section 80L-for Interest from Bank deposits etc.

The present limit for Savings Bank interest must be raised from Rs. 10000 to Rs.25000, thereby including interest on term (fixed) deposits.

Exempt Notional Income from Self-Occupied Properties:

At present, if an assessee has more than one house-as “Self-occupied” the ‘notional income’ from second ‘Self Occupied House property’ is taxable if there is no actual income from it. This is absurd as there is no real income to the property owners. Therefore, this provision of ‘notional income’ is case of Income from House Property must be abolished.

Saving Schemes & Interest Rates: Introduce Insurance!

Long-term savings schemes like 15 Years Public Provident Fund (PPF) must have interest rate of not less than 12%pa. In addition, some new schemes of deposits for long period say 5/7/10 years be introduced with a guaranteed return of 9-10% with naturally guaranteed repayment of principal too. Alternatively, return of Principal and interest can be insured by a an insurance company naturally charging its fees for such a insurance from the government or company which can run such schemes for the benefit of investors who wish to have secured returns –and do not wish to take risk of losing the principal and interest both. This shall open a new avenue for Insurance companies too.

Exempt Medicines from taxes:

All kind of taxes –excise and even Local Taxes like VAT/ Sales tax must be abolished on all medicines. If needed be the

Central Government can compensate the States for the loss of revenue on this account.

Conclusion:

Whatever there is a good of Budget announcements for poor must reach to them? Mostly benefits either do not reach or little is reached to them. Like Modi government showed big dreams to voters –same way it a dream budget –only time will tell if it becomes a reality.

(Mahesh Kapasi)

 

Mahesh Kapasi 
on 04 March 2016
Published in Taxation
Views : 984
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