A lot of expectations from the Budget 2022 is there, experts believe that it is good time to do the course corrections
Budget 2022 is just a week away. Expectations are high from all stakeholders given the hardship people have been facing since the last two years. The upcoming budget is also expected to be a populist budget as anticipated because five states are going to have elections soon after the budget. The big question: Will the government tinker with the new income tax slabs?
Moneycontrol spoke to three income tax experts and they have identified the three most important personal taxation proposals that Budget 2022 should pick up:
Single or hybrid tax scheme
At present there are two income tax slabs to choose from for tax filers. Vivek Jalan, partner, Tax Connect Advisory Services LLP, believes that there is a need for a single or hybrid tax slabs, instead of two. Tax experts like Jalan are unanimous that there are few takers for the new income tax regime.
The new income tax slabs that came into effect from April 1, 2020 (financial year 2020-21) under section 115BAC of the Income-tax Act, 1961, doesn’t allow exemptions and deductions like house rent and leave travel allowance, education allowance, section 80C and 80D benefits and home loan interest deduction under Section 24B.
There is a clear distinction among takers of new slab and old income tax slab. The new slab is taken up by millennials who are starting their careers. Their propensity to save is less and hence the exemptions/deductions do not appeal to them. People who are settled in their careers and who already have in place a system of investments generally opt for the old slab.
However, two different slabs make the law more complex. Jalan says that it is important for the government to take action and come out with a single combined and hybrid scheme. Here, he suggests, deductions that are taken by most taxpayers, like Section 80C, are available to everyone. But deductions like Section 24B (interest on home loan) can be slowly removed and rationalised.
Deductions and exemptions limit should be enhanced
At the same time, Archit Gupta, founder and CEO, ClearTax, points out that whatever tax deductions and exemptions remain can be enhanced.
For instance, the government had last increased the Section 80C deduction limit in 2014 from Rs 1 lakh to Rs 1.5 lakh. After that, an additional separate deduction of Rs 50,000 was allowed under Section 80CCD (1b) for contributions to the national pension scheme (NPS) in 2015.
It has now been more than six years since taxpayers have received more tax benefits.
On the contrary, direct tax collections have been growing every year. As per the government’s data, net direct tax collections have increased a healthy 60 percent in fiscal 2021-22. With this, the income tax department might consider extending its benefits to taxpayers. A separate deduction for investment in equity-linked savings schemes or ELSS can be allowed. The government should also consider increasing the standard deduction limit or offering a separate deduction for salaried employees. At present, there is no provision for deduction of expenses incurred by salaried employees for their personal growth like taking a course, improving skills, etc. These expenses are usually a part of working life and the government should offer tax benefits for such expenditures.
To further boost the housing sector, deductions for home loans should be offered for house purchases other than affordable housing. Also, the time limit for deductions under Section 80EEA for affordable housing can be extended further from March 2022.
ITR forms need to be simplified further
Several steps have been taken by the government over the years to simplify the income tax return (ITR) forms. However, Rakesh Nangia, chairman, Nangia Andersen India, believes that there is a need to further simplify these forms.
ITR forms for individual taxpayers currently have a lot of disclosure/confirmation requirements, especially in those cases where the taxpayer has income other than salary, interest, etc. Such confirmations are required, even when not applicable in the case of the majority of taxpayers. Further, many times, even after filling all correct details and passing validation checks, technical errors occur at the time of final submission/verification of ITRs.
Tax experts say the Budget should make a sincere attempt in making online forms simpler and making confirmations/disclosures optional for individual taxpayers.
Many salaried individuals these days have small incomes to be reported as capital gains, as they invest in and sell mutual funds, shares, etc. Even for a small amount of such transactions, they need to fill in a more detailed ITR-2 and if they also have some small business/professional income, they need to use the exhaustive ITR-3. This results in a lot of difficulties for such small taxpayers in meeting the necessary compliance norms. Detailed ITR-3 may be made applicable only for taxpayers having taxable income beyond a higher threshold limit, say Rs 1 crore. Below that, necessary changes may be made in simpler ITR-1 and ITR-4 only to report capital gains income.
Source: https://www.moneycontrol.com/news/business/personal-finance/budget-2022-expectation-unify-the-old-and-new-income-tax-regime-make-tax-forms-simpler-7978231.html
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