Budget making for a diverse and mammoth country like India is a herculean task. It is a tightrope walk where social justice has to be delivered while simultaneously taking care of the aspirations of the burgeoning middle class and the jobs creating private enterprises. Cutting to the chase, here are some suggestions from an aspirational Indian, that can improve the Budget preparing process as well as address long standing and repetitive demands.
1. Linking Of Income Tax Slabs With CPI
The aspiring middle class places the demand for revising the tax slabs, basic exemption limit and the various exemption limits like 80 C, 80 D and 80 G every other year. It would be worthwhile if the Finance Ministry can consider linking these limits to the consumer price inflation index and automatically revise it every year in line with CPI index. This would address the long-standing demand by the middle class of hiking the limits. As inflation is a tax on the poor and the middle class, linking the limits with CPI index will soothe the hearts and the soul of the middle class. It will also lend predictability and stability to the tax regime and help manage personal finances better for the middle class.
2. Rationalisation Of Income Tax Exemptions And New Tax Regime
This government must nudge taxpayers to migrate to the new tax regime by making it more attractive. Exemptions like 80 C, 80 D and housing loan exemptions must be offered to those migrating to the new tax regime and all three can be bundled together. An exemption limit of 4 lakhs can be provided to those who migrate to the new tax regime. Bundling all 3 popular exemption limits without any internal quota will provide the taxpayers with greater flexibility and incentivise them to move to the new tax regime. Linking of exemption limits and tax slab with CPI together with this bundled exemption flexibility will be of great benefit to the middle class in planning their personal finances better.
3. Aligning Capital Gains Taxation Across All Asset Classes
Capital gains taxation varies across asset classes. Both holding period and tax rate vary for different kinds of assets. For real estate, a holding period of two years is considered long term, for equity it is a year and for fixed income funds of mutual funds, it is three years. Similarly, the rate too differs across asset classes and so does the indexation benefit. Uniformity in duration, taxation and indexation benefit can be bought across asset classes. A benign long-term rate of 10% and a short-term rate of 15% and a duration of 2 years can also be ushered in across asset classes to disincentivise evasion, increase collection and boost compliance better.
4. Reforms In Real Estate And Gold Transactions
There is also a huge concealment of capital gains and ill-gotten wealth in real estate and gold. A big, big difference exists between guideline value aka circle rate and market value of the properties across states. The Union Budget must incentivise the state governments to correct this anomaly, by aligning both guideline value and market value and revise it periodically through an Index mechanism on the lines of stock indices. Monetary incentives like interest free enhanced borrowing limits can be provided to the states who implement this reform. This reform along with reduction in long term capital gains to 10% will increase tax revenues and boost compliance big over the next decade. Similarly, making PAN mandatory for every transaction in gold as an asset class irrespective of the transaction size will also decrease evasion and boost revenues for the government. This can be accompanied by a dramatic reduction in customs duty on gold to 0% which will not only prevent smuggling but also be the carrot shown to the sector as the stick of PAN for every transaction is implemented. Both these measures can dramatically change the structure of the economy for the better.
5. Revamp Of Income Tax Return Filing Portal And Process
Bugs in Income Tax return filing software still persists. The Finance Ministry has to take special care and ensure all bugs are rectified before March 31st 2022 and ensure the system is up and running as early as April 1, 2022 for filing of returns. That would be a record of sorts as the portal was never up and running on the very first day of a financial year for filing of returns. Similarly, a deadline for the government to process both the returns and refunds must be adopted and institutionalised. Early bird incentives like faster processing of both returns and refunds must be given. Returns filed before May 31st of every year can be processed and refunds issued within a maximum of 15 days and those after May 31st 2022, the process must be completed in 30 days. Just like the governments expect every citizen to pay taxes on time, an abiding citizen must be given the luxury of getting refunds within a stipulated period of time. The Hon’ble Finance Minister must give this commitment in the Budget and take the Government-Taxpayer relationship to the next level.
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