Some tax experts expect a long-term capital gains tax on equities to be tweaked The government should make a separate deduction for expenses permitted under Section 80C: Tax experts
Following the surprise cut in corporate tax rates in September, many tax experts expect the government to adjust income tax rates and deduct some relief from the common man. But, caution experts, don't expect much given the government's fiscal constraints.
"It won't be easy to cut personal income tax rates when the exchequer is already reeling under the impact of foregone revenue due to the cut in corporate tax rates. The government will have to strike a balance between taxpayers ' expectations and the resources at its disposal, "said AMRG & Associates CEO Gaurav Mohan.
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Here some expectations from Union Budget 2020.
Some tax experts are expecting a rejig in basic income tax rates or tax slabs due to the steep rise in rates to 20 percent in the lakh earnings slab from 5 percent in the previous slab. "This could be accompanied by a new slab for some 10-20 lakh as the 20 percent tax rate above some 5 lakh appears to be a steep increase over the 5 percent rate immediately preceding.If this happens, the tax rate of 10 percent could be re-introduced for the slab of some 5-10 lakh income, "says Alok Agrawal, a Deloitte India partner.
Some tax experts expect capital gains tax on equities to be tweaked in the long term. In 2018, the government reintroduced a long-term capital gains tax on gains resulting from the transfer of listed equity shares of more than 1 lakh at 10 percent, without allowing any indexing benefit (subject to an appreciation grandfathering benefit up to January 31, 2018).
"This limit of approximately 1 lakh is too low because many individuals have held investments in equity mutual funds for many years. In order to continue to incentivise retail investments in equity MFs, the government could consider raising the limit from 1 to 2 lakh for holding beyond, say, two years, "Deloitte India's Alok Agrawal said.
Last year, under the affordable housing segment, the government provided additional deduction for interest payments of up to 1.5 lakh for first-time homebuyers for house value up to a maximum of 45 lakh. However, even in Tier-2 cities, middle-income group taxpayers may not qualify for such a deduction because of higher cost of housing, say tax experts.With rapid urbanization in India, the housing value limit should be increased so more Indians can take advantage of that deduction, experts say.
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A popular avenue for channeling household savings by means of income tax provisions was the deduction under Section 80C that is currently limited to about 1.5 lakh per year. However, the scope of this deduction has become too wide over the years as compared with its very modest limit, experts say."We do foresee some relief in lower tax slabs for personal income, with minimal impact on the exchequer.
The biggest relief could come in the form of extending limits on the benefits of Section 80C," said Yes Securities senior president and research head for institutional equities, Amar Ambani.
Alternatively, the government should make a separate deduction for expenses permitted under Section 80C such as child tuition fees, life insurance premium and home loan principal payments compared to investment-oriented items in that scope, says Saraswathi Kasturirangan, Deloitte India's partner.
Tax experts feel that more tax incentives require further boosting of the NPS scheme. According to reports, PDRDA, the NPS regulator, sought to raise the additional deduction limit from approximately 50,000 to approximately 1 lakh.
In the event that your employer also contributes to your NPS account, an additional deduction of up to 10 percent of salary (basic + DA) regardless of any income tax deduction limit referred to in Section 80 CCD(2). While this limit for central government employees has been increased to 14 per cent of salary, it remains at 10 per cent for others.PFRDA has urged the government to extend the tax-free contribution facility of 14 per cent to all categories of subscribers, according to reports.
Some tax experts expect the government to announce some tweak in the distribution tax (DDT) on dividends. "Withdrawal of the DDT will eliminate the tax cascading effect. The government should tax dividends at concessional rates in the hands of shareholders, "says Ashok Shah, a NA Shah Associates LLP partner.
A firm currently pays income tax on its taxable profit. Then, if it distributes the surplus profit to shareholders, it will have to pay DDT at 20.56%. In addition, taxpayers are also required to pay an additional 10 percent tax (plus applicable surcharge and cessation) on dividends above the average of 10 lakh.
Some tax experts say the government should either abolish STT (Security Transaction Tax) on listed securities or exempt long-term capital gain from tax when selling listed securities. Long-term capital gains tax (LTCG) on listed securities and transaction tax on securities (STT) amounts to double taxation, say tax experts.
"STT was introduced in 2004 and consequently long-term capital gain was exempted from tax on which SST is paid. Tax on long-term capital gains on listed securities was reintroduced in the Union Budget 2018. At the same time, STT was also continued. That had negative effects on investor sentiments, "NA Shah Associates ' Ashok Shah says.
Fixed income investments do not provide much benefit to investors because of income tax levied on interest income, says Saraswathi Kasturirangan, a partner with Deloitte India.
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