While the Union Budget may be disappointing for salaried taxpayers, with the government not making any changes to the existing structure of personal income tax rates for individuals, it has given a few tax benefits to senior citizens.
Finance Minister Arun Jaitley said the government had decided not to change the structure of personal income tax, as it has made many “positive changes” in the last three years.
Jaitley, however, proposed a standard deduction of Rs 40,000 per year from salary income in lieu of the existing transport allowance of Rs 19,200 and Rs 15,000 medical reimbursement. This, according to industry experts, will provide little or no relief to the salaried taxpayer.
A rough calculation shows that the additional income exempted from tax after removing these allowances from the proposed standard deduction is Rs 5,800. So, the tax savings for employees currently paying 5 per cent tax on this income will be Rs 290; Rs 1,160 for those paying 20 per cent tax on this income, and Rs 1,740 for individuals paying 30 per cent tax on this income.
However, due to increase in health and education cess from the existing 3 per cent to the proposed 4 per cent, these savings will have no effect in most cases, except for salaried individuals whose annual income is up to Rs 5 lakh.
“The FM stated that salaried taxpayers need to be put on par with individual business taxpayers who are able to claim the benefit of expenses and pay taxes only on net basis. But the benefit of standard deduction of Rs 40,000 was balanced out by taking away the transport allowance of Rs 19,200 and medical allowance of Rs 15,000, thereby resulting in a negligible overall benefit of Rs 5,800. Coupled with the increase in tax cost, owing to the 1 per cent increase in health and education cess, this may actually result in a higher tax outgo for the salaried taxpayers,” said Rakesh.
Nangia, managing partner of chartered accountancy firm Nangia & Co LLP. In his Budget speech, Jaitley said a major portion of personal income-tax collection comes from the salaried class. He said for assessment year 2016-17, 1.89 crore salaried individuals filed their returns and paid Rs 1.44 lakh crore as taxes, which works out to an average tax payment of Rs 76,306 per individual salaried taxpayer.
On the other hand, 1.88 crore individual business taxpayers including professionals, who filed their returns for the same assessment year, paid a total of Rs 48,000 crore as taxes, which works out to an average tax payment of Rs 25,753 per individual business taxpayer.
Tax consultants also feel that the long term capital gains tax of 10 per cent on stocks and mutual funds could impact the retirement corpus of individuals taxpayers and discourage them from putting more money in stock and mutual funds, which are more productive asset classes.
“A tax rate of 10 per cent (on stocks and mutual funds) without indexation can be compared to the tax rate on immovable property, which is 20 per cent with indexation. This, along with the high valuations, will reverse the flow of saving to equities and may be detrimental to the economy in the long term,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
“The Budget missed a chance to offer the middle-class a significant relief of extended tax-slabs and/ or enhanced limit under Section 80C for the trouble they underwent during demonetisation,” said Amar Ambani, partner and head of research, IIFL Wealth.
For senior citizens, the government has increased tax exemption limit for interest income from banks and post offices from Rs 10,000 to Rs 50,000. It has also increased the tax break on health insurance and medical expenditure under Sections 80D and 80DDB. These proposed changes have been the longstanding expectations of this category of taxpayers, as a significant number of senior citizens derive their income from bank fixed deposits and post office schemes.