1) Standard deduction may make a comeback: A majority of the respondents in the EY survey were of the view that multiple outdated deductions would be replaced with a standard deduction to reduce the tax burden of employees. Standard deduction allows for a flat deduction from income of a salaried individual towards expenses an employee would incur in relation to his or her employment. Standard deduction, which was available to the salaried individuals on their taxable income, was abolished with effect from assessment year 2006-07. Chambers of commerce have suggested reintroduction of the standard deduction for salaried employees of at least Rs. 1 lakh.
2) Tax slab rejig: It is expected that in order to give more purchasing power in the hands of common people and small entrepreneurs, the minimum exemption limit may be increased from the current level of Rs. 2.5 lakh to Rs. 3 lakh per annum, says Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.
3) Medical reimbursement: “The limit of Rs. 15,000 was introduced way back in the year 1999. It is recommended that the exemption limit on medical expenses should be raised to at least Rs. 50,000 per annum,” says Naveen Wadhwa, DGM at Taxmann.
4) Section 80C of the Income Tax Act helps in increasing savings of individuals. “The deduction limit was last raised in FY 2014-15 where it was increased from Rs. 1 lakh to Rs. 1.5 lakh per year. To encourage savings under various instruments mentioned therein like PPF, tax-saving FDs etc., the limit can be increased to Rs.2 lakh,” says Mr Sehgal of Ashok Maheshwary & Associates LLP. Some experts have also suggested that the government reduce the tenure of tax-exempted retail term deposits (tax saver fixed deposits) to minimum of three years from current five years.
5) Dividend distribution tax: The government may consider doing away with the dividend distribution tax (DDT) in Budget 2018 to be unveiled on February 1, EY India said. Dividends paid by a domestic company to shareholders are subjected to dividend distribution tax at 15 per cent of the aggregate dividend declared. The effective rate is 20.35 per cent, including surcharge and cess. The dividend income is tax-free in the hands of investors. However, if the amount of dividend income exceeds Rs. 10 lakh on a gross basis, an additional tax of 10 per cent (plus surcharge and cess) applies on dividend income.
6) HRA: Higher deductions are allowed to employees who are in four metropolitan cities – Mumbai, Delhi, Kolkata and Chennai. “The rental charges for a house in cities like Bengaluru or Hyderabad are not less in contrast to four metropolitan cities. Therefore, the government should also include many other cities in the category of higher exemptions for HRA in cities like, Bengaluru, Hyderabad, Pune, Ahmedabad, Jaipur, Noida, Gurgaon etc,” said Mr Wadhwa Taxmann.
7) Reduction of period of holding for property: “Under provisions like 54 and 54F, the investor in a residential house property is required to hold property so acquired for three years for retaining the capital gain exemption for long-term gains. This is an anomaly considering that the period of holding to adjudge long-term capital gain has itself been reduced to two years. Hence, it results in a situation where one can sell a house property after two years of its purchase and the gain will be a long term capital gain. However, to retain the exemption so availed, one would need to hold the property so acquired for three years which seems absurd. Hence, consequent amendment should be made in these provisions as well so that the period for holding the new assets acquired should also be reduced to two years,” says Sandeep Sehgal, director of Tax and Regulatory at Ashok Maheshwary & Associates LLP.
8) Employees switching jobs are often required to pay a sum to the employer for not serving the entire notice period. “It is a double whammy for the employees, as they are required to pay the money to the employer and are not allowed to claim the deduction for such payment, adds Mr Wadhwa of Taxmann. “In a recent case, the Income Tax Tribunal held that tax will be levied only on actual salary received by an employee. Therefore, it is recommended that Section 16 must be amended suitably to allow deduction of notice pay,” he adds.
9) Leave travel allowances or LTC: According to current tax laws, a tax exemption is allowed for actual expenditure incurred in respect of travel in India and it is allowed for two journeys in a block of four calendar years. Tax experts say that this rule should be eased to allow exemption in respect of one journey per year.
10) Tax experts have also called for higher exemption limit on allowances received for children education and hostel expenditure. According to current tax laws, children education allowance of Rs. 100 per month per child up to a maximum of two children and hostel expenditure allowance of Rs.300 per month per child up to a maximum of two children is not taxable.