The government would need to take stern steps for restoring the sluggish consumption growth by finding at least a few ways to give back more money to a common man's wallet. With more money being added to the pockets of the common man, the economy could witness more consumption and liquidity, and probably, positive growth that could infuse new life to the teetering economy.

While we don’t aim to make any predictions on the budget, following are the few areas which if worked upon can bring some more money back to a common man’s wallet.

1. Personal Tax Cuts Could Give Relief to the Common Man

September 2019 witnessed the Finance Minister announcing a deep cut in the corporate tax rates. From 30%, the base tax rate was reduced to 22%. While this bold move has made India a country with one of the lowest corporate tax rates, it also significantly increased the difference between the tax rate for corporates and individuals.

There are two probable options in the personal tax category that could give some relief to the common man.
    a) By Increasing the Non-taxable income Limit
Many experts believe that the exemption limit for individual taxpayers might be increased from the current Rs. 2.5 lakhs to between Rs. 3 lakhs and Rs. 5 lakhs for individuals below 60 years. A similar increase in the exemption limit for seniors and super seniors.

If the nil tax bracket is extended to Rs. 3 lakhs, here is an approximate of how much people could save on income tax payments-

Income in Financial Year Tax Savings After Rate Cut
Rs. 500,000 Rs. 2,600
Rs. 10,00,000 Rs. 2,184
Rs. 20 lakhs Rs. 2,184

    b.) By Altering the Current Tax Slabs
Rationalising the tax brackets for incomes above the nil bracket income could add more towards tax savings. Currently the income tax slabs are 5% (for taxable income between (2,50,001 and 5,00,000), 20% for taxable income between 5,00,001 and 30% (for taxable income above 10,00,000).

This could either be done by adding more slabs between nil bracket income (currently 2,50,000) and 10,00,00, or decreasing the tax rates within the existing slab. If the new slabs are added with tax rates 5%, 10%, 20%, 30%, and 35% as opposed to the currently existing 5%, 20%, and 30%, it could lead to considerable tax savings for a common man further.

2. Higher Deductions Under Section 80C Could Lead to Considerable Tax Savings

Currently, the maximum tax deduction that can be claimed under Section 80C of the IT Act is Rs. 1.5 lakhs. Many different investment options are eligible for 80C deductions. Some of the most popular options are-
  • Provident Fund
  • National Savings Certificate (NSC)
  • Public Provident Fund
  • Infrastructure Bonds
  • Senior Citizens Savings Scheme
  • Post Office Time Deposit Scheme (5 years)
  • NABARD Rural Bonds
  • ELSS Mutual Funds

If the 80C limit is increased to Rs. 2 lakhs or Rs. 2.5 lakhs, it will not only boost investments but also aid in people having more savings.

Let us see how this can impact you with an example.
If a taxpayer with an annual income of Rs. 8 lakhs uses the currently existing Rs. 1.5 lakhs deduction limit of 80C, the total tax liability would be Rs. 44,200. But if the limit is extended to Rs. 2 lakhs, the tax liability will fall to Rs. 33,800, offering a saving of Rs. 10,400.

3. Lowering the GST Rates for Propelling Consumption and Growth

While the GST was launched on July 1, 2017, to bring the entire country under one tax regime, almost three years later, there are still some issues that need to be ironed out. FMCG and Consumer Durables were few of the most impacted sectors due to the GST.

GST Rate cuts in key sectors could not only propel consumption but revive the economy of the country.
    c.) GST Rate Cut in Consumer Durable (Electronics and Appliances)

Here is how moving consumer goods from 18% slab to 12% slab could help consumers save more-

Product Approximate Price Current GST at 18% Revised GST at 12% Savings
Television Rs. 20,000 Rs. 3,600 Rs. 2,400 Rs. 1,200
Refrigerator Rs. 22,000 Rs. 3,960 Rs. 2,640 Rs. 1,320
Washing Machine Rs. 25,000 Rs. 4,500 Rs. 3,000 Rs. 1,500

While television sets up to 32-inches are taxed at 18% GST, the same for larger screens is 28%. Bringing these down to 18% could also impact the prices of TVs considerably.

A GST rate cut in these key sectors could not only lead to increased tax savings for a common man but also revive these sectors, which could further lead to an increase in job opportunities in these sectors.

4. Higher Housing Loan Deduction for Increase in Savings

As per a report, the housing demand in H2 of 2019 fell by 22%. Higher tax deductions could encourage more people to purchase residential property. If the Section 24 deduction is increased to Rs. 2.5 lakhs, here is how it can help existing and new home loan borrowers-

To add more to the pockets of the middle-class people, if the deduction under Section 24 increases to Rs. 2.5 lakhs or Rs. 3 lakhs from the current Rs 2 lakhs, it’d result into huge savings.

This will not only provide more tax savings to the people but will also boost the real estate sector and aid the currently struggling lending sector.

Annual Income Rs. 8 lakhs
Current Section 24 Deduction Rs. 2 lakhs
Current Income Tax Liability Rs. 33,800
Revised Section 24 Deduction Rs. 2.5 lakhs
Revised Income Tax Liability Rs. 23,400
Total Savings Rs. 10,400

5. Higher Exemption Limit on Affordable Housing Schemes

To further boost the “Housing for All” initiative of the government, the Finance Ministry announced an increase in tax exemption on interest paid on home loans in Budget 2019. From Rs. 2 lakhs, the interest exemption was increased to Rs. 3.5 lakhs in a financial year. But the exemption is available on affordable housing properties under Rs. 45 lakhs only.

But larger metro cities like Mumbai, Bengaluru, and Delhi are well-known all over the country for their high real estate prices. Moreover, in 2019, the real estate prices in these cities have only increased further, with Mumbai, witnessing a price rise of around 3.45% (CAGR) as compared to the prices in 2018.

Due to this, it is often difficult for families to find a house property under Rs. 45 lakhs in larger metro cities.
It will be helpful for the masses if this interest exemption limit on affordable housing is available for properties of up to Rs. 75 lakhs instead of 45 lakhs.

6. Revision in Exemption Limit Under Section 80CCD(1B) to propel investments

There are currently more than 1.2 crore NPS (National Pension Scheme) subscribers in India. While NPS is eligible under Section 80C of the IT Act for deduction of up to Rs. 1.5 lakhs, there is an additional deduction of Rs. 50,000, under Section 80CCD(1B) of the IT Act, only available for NPS subscribers.

If there could be an increment in this limit to Rs. 1 lakh (per year) from the current Rs. 50,000, it would support to increase tax savings.

In fact, many financial experts expected this increase in the deduction in 2019 however this revision may take place in Budget 2020 as the PFRDA (Pension Fund Regulator and Development Authority) has already sent a proposal about the same to the government.

To understand the impact of this on a taxpayer's pocket, let us look at the following example. Assuming Mr Raju with an annual income of Rs 7,25,000 has invested 2,50,000 in NPS in a year, and there is no other expense or investment which is eligible for deduction under section 80C.

Field Particular At Current Deductions on NPS If Deductions on NPS is increased
a Income before Deductions 7,25,000 7,25,000
b NPS Investment 2,50,000 2,50,000
c Deductions 80C 1,50,000 1,50,000
d Deductions 80CCD(1B) 50,000 1,00,000
e Income After Deductibles {a-(c+d)} 5,25,000 4,75,000
f Income Tax 15,625 (12,500 +12.5% of 25,000) 11,125 (5% of 2,25,000)
g Tax Savings 4,500

Thus, in the example above, increasing the deduction limit under section 80CCD(1B) on NPS from Rs 50,000 to Rs 1,00,000 led to an annual savings of Rs 4,500 for Mr Raju.

7. Higher LTA Benefit Indian Destinations Could Boost Tourism

Employees can exempt the LTA (Leave Travel Allowance) allowance they receive in their salary from their taxable income. But the exemption is only available if the employee or his/her family uses the allowance money to travel to any place in India. Most importantly, it is available for up to 2 journeys taken within a span of 4 years.

With stressful and hectic lives that most of us live, 2 journeys in 4 years may not be enough.

Thus, if there is an increase in this limit from 2 to 3 or higher, this could help taxpayers save a decent amount of money in taxes while also giving a much-needed boost to the Indian tourism sector.

Budget 2020: A Tough Way Ahead for the Government

With the fiscal deficit consistently rising, it’d be challenging for Budget 2020 to please all the different sectors of the society. Reviving consumption could be the key to boost the Indian economy, increase tax collection, and improve GDP growth. As the common man is the backbone of consumption and overall Indian economy, Budget 2020 focus could be on fulfilling as many expectations of the general public as possible. Making it out-and-out common man’s budget can add more money to the wallets of the general public, which they can then spend, and in turn, help restore the Indian economy.

*Source - Economic Times


The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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