Budget 2011: Common man's expectations from the FM
FM has to balance many things. On one side he has to match the expectations of the common man and on the other hand, he is required to see how revenues can be generated.
By Vineet Agarwal, director, KPMG and Rajashree Sarna, manager, KPMG
As the Budget day comes closer, many of us start having our expectations from the Budget. Everyone from the 'aam aadmi' to the 'corporate honcho' is waiting for finance minister Pranab Mukherjee to wave his magic wand from his red briefcase and assure the people of heavier pockets this year.
Here we take a look at the common man's expectations from the Budget 2011:
Further dilution of tax slabs
The revised tax slabs announced by the finance minister ('FM') for the financial year 2010-11 in the previous budget was a welcome relief. However, that benefit seems to have been lost to the inflation that we have seen. Therefore, the expectation to further liberalize the tax slabs is only fair. With the implementation of the Direct Tax Code in the pipeline, the FM may consider bringing tax slabs in line with the slabs proposed under DTC and raise the basic exemption limit to Rs 200,000. The exemption limit may be raised to Rs 250,000 for women and Rs 300,000 for senior citizens.
Exemption limit for various allowances
In 1997, the then finance minister, Mr P.Chidambram, had revised the exemption limits for various allowances like transport allowance (exemption allowed at Rs 800 per month), children education allowance (Rs 100 per month), and hostel expenditure allowance (Rs 300 per month). However, over the period 1997 to 2011, the economic conditions have undergone vast changes. This may be a right time for the government to consider revising these existing exemption limits to bring them in line with the market reality. The new limit of conveyance allowance should be Rs 4,000 per month. Children education may be Rs 500 per month and hostel Rs 2,000 in line with the current increase in educational costs.
Reimbursement of medical expenses
An exemption for reimbursement of medical expenses on the treatment of employee or his family members is available up to Rs 15,000 per annum. Over the last years, the expected cost of basic medical facilities has increased considerably. Keeping this in view, the government can consider revising the exemption limit from the existing Rs 15,000 to a more realistic level of Rs 50,000. This will also be in line with the limits prescribed in the Direct Taxes Code.
Raising the Rs 1 lakh deduction limit
As per Section 80C of the Income Tax Act, 1961, an individual can claim deduction for specified investments in mutual funds, provident fund, fixed deposits, etc and for specified expenses such as children's education. This provides a dual benefit - on one hand the individual becomes eligible to claim tax deduction on these investments, while on the other hand he enjoys steady returns from such investments. Thus, common man's expectation of an increase in the deduction limit from the current Rs 1,00,000 to Rs 2,00,000 will not be an overstatement. Also, a deduction up to Rs 20,000 under 80CCE for investment in infrastructure bonds is allowed which can be increased to Rs 30,000. Increasing this deduction limit will not only impact the common man with a lesser tax burden, but will also help the government to channelize funds into the Indian infrastructure sector.
As the Budget day comes closer, many of us start having our expectations from the Budget. Everyone from the 'aam aadmi' to the 'corporate honcho' is waiting for finance minister Pranab Mukherjee to wave his magic wand from his red briefcase and assure the people of heavier pockets this year.
Here we take a look at the common man's expectations from the Budget 2011:
Further dilution of tax slabs
The revised tax slabs announced by the finance minister ('FM') for the financial year 2010-11 in the previous budget was a welcome relief. However, that benefit seems to have been lost to the inflation that we have seen. Therefore, the expectation to further liberalize the tax slabs is only fair. With the implementation of the Direct Tax Code in the pipeline, the FM may consider bringing tax slabs in line with the slabs proposed under DTC and raise the basic exemption limit to Rs 200,000. The exemption limit may be raised to Rs 250,000 for women and Rs 300,000 for senior citizens.
Exemption limit for various allowances
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In 1997, the then finance minister, Mr P.Chidambram, had revised the exemption limits for various allowances like transport allowance (exemption allowed at Rs 800 per month), children education allowance (Rs 100 per month), and hostel expenditure allowance (Rs 300 per month). However, over the period 1997 to 2011, the economic conditions have undergone vast changes. This may be a right time for the government to consider revising these existing exemption limits to bring them in line with the market reality. The new limit of conveyance allowance should be Rs 4,000 per month. Children education may be Rs 500 per month and hostel Rs 2,000 in line with the current increase in educational costs.
Reimbursement of medical expenses
An exemption for reimbursement of medical expenses on the treatment of employee or his family members is available up to Rs 15,000 per annum. Over the last years, the expected cost of basic medical facilities has increased considerably. Keeping this in view, the government can consider revising the exemption limit from the existing Rs 15,000 to a more realistic level of Rs 50,000. This will also be in line with the limits prescribed in the Direct Taxes Code.
Raising the Rs 1 lakh deduction limit
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As per Section 80C of the Income Tax Act, 1961, an individual can claim deduction for specified investments in mutual funds, provident fund, fixed deposits, etc and for specified expenses such as children's education. This provides a dual benefit - on one hand the individual becomes eligible to claim tax deduction on these investments, while on the other hand he enjoys steady returns from such investments. Thus, common man's expectation of an increase in the deduction limit from the current Rs 1,00,000 to Rs 2,00,000 will not be an overstatement. Also, a deduction up to Rs 20,000 under 80CCE for investment in infrastructure bonds is allowed which can be increased to Rs 30,000. Increasing this deduction limit will not only impact the common man with a lesser tax burden, but will also help the government to channelize funds into the Indian infrastructure sector.
Housing loan exemption limit
With the property prices spiraling high, the government's aim of providing comfortable and affordable housing to all may remain a theory unless it considers the following:
• In case of self-occupied property, exemption for interest payment on home loan may be increased from the current level of Rs 1,50,000 to Rs 3,00,000;
• Completion of real estate projects usually takes more than three years due to inadvertent delays caused by various factors. Thus, the government may consider relaxing the condition of completing the construction within three years failing which the deduction is restricted.
Deduction allowed for medical insurance premium
As per the current rules, a deduction of Rs 15,000 is permissible for payment of insurance premium towards insurance for self, spouse or dependent children. An additional deduction of Rs 15,000 is allowed for contribution made towards parents' insurance. If the concerned individual is a senior citizen (65 years or more), additional Rs 5,000 is allowed.
However, the steep rise in medical expenses can not be ignored. Thus, the budget may provide for the following relaxations:
• The exemption limit of Rs 15,000 as specified above may be raised to Rs 20,000
• Since healthcare costs for senior citizens are expected to be higher than average, deduction limit for senior citizens can be extended to Rs 25,000
• In many cases, the individual may have to bear medical expenses for his/ her dependent brother or sister. Thus, the definition of this provision may be modified to cover them.
Medical treatment of a disabled dependent
Under Section 80DD of the Act, if an individual incurs expenditure for medical treatment, rehabilitation and training for a dependent who is a person with disability (duly certified by the prescribed medical authority), he is eligible for deduction to the extent of Rs 50,000. In case of a person with severe disability, deduction is allowed to the extent of Rs 75,000. However, such deduction is not in line with market realities. Hence, an expectation for an increase in deduction limits may be considered.
On similar lines, in case an individual is a person with disability, he can claim similar deduction under Section 80U of the Act. As mentioned above, this amount is unlikely to suffice for the actual expenditure incurred, thus relaxation in the quantum of deduction as stated above can be anticipated.
The FM has to balance many things. On one side he has to match the expectations of the common man and on the other hand, he is required to see how revenues can be generated. Now, as the budget day comes closer, we hope that Budget 2011 brings a smile to every face with a promise of inclusive growth for the nation.
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