Respected Madam,
I understand budget making for a diverse and mammoth country like India is a herculean task. It is a tightrope walk where in social justice has to be delivered while simultaneously taking care of the aspirations of the burgeoning middle class and the jobs-creating corporate.
It is that time of the year where you are having your ears to the ground taking inputs from across the spectrum which can help in the budget preparing process. As a common man and a finance professional, here are my humble suggestions on the personal taxation front to you to not only improve the budget process but also address long standing and repetitive demands.
1. Linking Of Income Tax Slabs Wth CPI
The aspiring middle class places the demand for revising the tax slabs, basic exemption limit and the various exemption limits like 80 C and 80 D every other year. It would be worthwhile if you can consider linking these limits to the Consumer Price Inflation (CPI) index and automatically revise it every year in line with CPI index. This would address the long-standing demand of the middle class who place the demand of hiking the limits every year. As inflation is an indirect 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. And the basic exemption limit can be hiked to ₹8 lakhs in sync with EWS and OBC creamy layer cut-offs.
2. Rationalisation Of Income Tax Exemptions
This government’s nudge to migrate tax payers to the new tax regime hasn’t yielded fruit so far. The government can instead tweak old tax regime and rationalise it further. All exemptions like 80 C, 80 D, 80 E, housing loan exemption under Sec 24 and the numerous other exemptions under various other sections must be bundled together and an exemption limit of ₹6 lakhs can be provided to all tax payers under the old regime itself without any internal quota like limiting 80 C to ₹1.5 lakhs and 80 D to ₹25,000/₹50,000. Bundling all these popular exemption limits without any internal quota will provide the tax payers with greater flexibility, freedom to invest in equities and real estate or spend on school fees and take insurance as they wish to. 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.
Once this flexibility is provided, the government can even do away with Standard Deduction, 80 TTA, and allowances like LTA and HRA allowances which are always grey and provide an opportunity to evade or falsify records by tax payers.
3. Aligning Capital Gains Taxation Across All Asset Classes
Capital gains taxation varies across asset classes – both holding period and tax rate varies like for real estate, the holding period is two years to be considered as 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 in 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. Ushering in a benign tax slab for capital gains along with the doing away with the concept of indexation will go a long way in simplification of tax regime.
4. Clear Roadmap For Taxation
After rationalising the exemptions and the exemption limit, the Government of India must clearly specify that these taxation norms and limits will be in force for at least 20 years and that government will not retrospectively change them like the changes which were implemented few years back especially limiting the housing loan exemptions on the interest front to just ₹2 lakhs causing great difficulty to the middle class who took loans to buy a dream home hoping the exemptions will stay for 20 or 25 years. A clear roadmap on personal taxation is essential and such a roadmap will also improve the credibility of the government big.
5. Time-Bound Income Tax Return Processing And Despatch Of Refunds
Finance Ministry has to take special care and ensure all bugs are rectified on the income tax portal before 31 March 2023 and ensure the system is up and running as early as 1 April 2023 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 time bound processing of 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 31 May of every year can be processed and refunds issued within a maximum of 15 days and for those filed after 31 May, the process must be completed in 30 days. Just like the government 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 Finance Ministry must give this commitment in the Budget and take the Government-Tax payer relationship to next level.
Thank you.
Click here to subscribe to The Commune on Telegram and get the best stories of the day delivered to you personally.