A number of proposals have been received by the finance minister and many proposals have been received with multifarious suggestions. Some experts have suggested not messing with the personal tax rates while others preferred that the personal tax rates be reduced and brought in line with the corporate tax rate. Expectations on corporate taxes were low as the government had reduced them in September 2019.
The lowering of the tax rate had triggered hopes that the FM would announce some relief on the personal income tax front in this year’s budget. The rates of higher deductions and the income tax slabs- all of that will result in tax rate cuts which will hit revenues at a time when the government’s finances are strained. Apart from the rationalization of the income tax rates, experts also expect tweaks in dividend distribution tax and long term tax gains on listed securities.
Major expectations of experts and industry players
According to the present tax slab, income up to INR 5,00,000 is taxed at 5% and from INR 5 lakhs to 10 lakhs, it is deducted at 20%. In Budget 2020, this tax rate could be moderated. On the other hand, a company at present pays income on its taxable profit. Later, it distributes the surplus profit to the shareholder and it needs to pay DDT at 20.56%. The non- corporate resident tax payers also need to pay additional tax at 10% on dividend above 10 lakhs. The withdrawal of the DDT will remove the cascading impact of taxation and the tax dividend will be brought into the hands of shareholders at concessional rates.
Levying tax on long term capital gains on listed securities and Securities Transaction tax will amount to double the taxation. The STT was introduced in 2004 and according to long term capital gains on which SST is paid, was exempted from taxes. The Union Budget for 2018 reintroduced long term capital gains on listed securities. STT was also continued at the same time and this had negative effects on the sentiments of investors. Experts feel that the Government should abolish STT on listed securities or should exempt Long Term Capital Gains on sale of listed securities from taxes. The government is also expected to implement some new tax sops for home loans and to support the real estate sector. In the July budget of last year, the FM had announced that an additional deduction of up to INR 1.5 lakh for interest paid on loans borrowed till 31st March 2020 would be granted for the purchase of an affordable house which is priced below INR 45 lakhs.
According to the experts, the expectation is that that all first time home buyers should be extended this advantage, irrespective of their property values. This is going to be a huge incentive for those who are thinking of buying their first homes. Experts also believe that Section 80C of the Income Tax Act also does not provide for focused benefits on principal amounts repaid on home loans and this may put home purchases on hold for some buyers. This is because the taxpayers have quite a few investment alternatives to choose from in this section and the lack of exclusive tax benefits on the principal amount of home loan makes them put their decision on hold. A separate annual deduction of INR 150,000 for principal repayment will provide the much needed incentive for home buyers while boosting housing sales volumes at the same time.
According to pension fund regulator PFRDA, an increase in income tax benefit under NPS to INR 1 lakh in the upcoming budget is expected. This investment is up to INR 50,000 in a financial year in Tier I NPS account and is eligible for tax deduction under Section 80 CCD of the Income Tax Act. In case the employer is also contributing toward the NPS account, which is compulsory for all government employees except Ex- Armed Forces, an additional deduction of up to 10% of salary which includes Basic plus DA, irrespective of any limit, will qualify for Income Tax Deductions under Section 80 CCD 2.