Will Union Budget 2019 deliver on the expectations of individual taxpayers?

: Currently, individuals with an income between Rs 2.5 lakh and Rs 5 lakh are liable to pay tax at 5 percent. The rate applicable for income between Rs 5 lakh and Rs 10 lakh jumps to 20 percent ― a rather steep rise! The FM could reduce this to 10 percent, applying the 20 percent and 30 percent slabs to incomes exceeding Rs 10 lakh and Rs 15 lakh, respectively.

Simplifying taxation on Employee Stock Options (ESOPs): Currently, taxation of ESOPs first arises at the time of exercise of the options by employees as salary income, and subsequently, their sale triggers Capital Gains Tax.  The FM could consider bringing in single-point taxation of ESOPs only at the time of sale.

Increasing housing loan interest deduction: Most people depend on home loans to fulfil their dream of owning a house. The current deduction, which is restricted to Rs 2 lakh, is not commensurate in view of prevailing property prices. It would be a welcome move if the FM increased this cap to Rs 3 lakh in the case of self-occupied house property.  Additionally, she could consider bringing back the provision that allows set-off of the entire loss (against other income) from house property being let out.  This will boost the demand for housing and help the real estate sector.

Bringing parity in taxation of National Pension Scheme (NPS): The previous government’s vision was to make India a pensionable society and ensure financial security for its citizens after their retirement. With this objective in mind, the NPS was introduced for all Indian citizens in 2009.  However, while there has been a steady growth in the NPS’ subscriber base over the years, this growth is not comparable with that of conventional schemes such as Employee Provident Fund (EPF) and Public Provident Fund (PPF).

A major deterrent for NPS replacing other conventional retrial schemes is the tax advantage EPF and PPF enjoy. Withdrawal from PPF and EPF are fully exempt from tax (subject to satisfying underlying conditions), whereas payouts (from mandatory investment of 40 percent in annuities) from NPS continue to be taxable. The government could consider making an exit from NPS more attractive by extending the tax-free benefit to payouts from the mandatory investment in annuities.

Increasing the limit of Section 80C deductions: The current deduction, restricted to Rs 1.5 lakh, covers several eligible payments and investments within its ambit, e.g. life insurance premiums, PPF and EPF, principal repayment of housing loan, etc.  The FM could consider increasing the limit to Rs 2 lakh under Section 80C.

Taxing crèche facility at workplace: There is ambiguity on taxation of crèche facilities provided by employers. The government could make it clear that this is not a taxable benefit like under the erstwhile Fringe Benefit Tax regime.

Increasing deduction for preventive health check-ups: The FM could increase the existing deduction of Rs 5,000 to Rs 10,000 in view of the rise in the costs and the required periodicity of health check-ups.

As this Budget will be presented in-between the fiscal year, we should expect minimal changes in taxes. However, the government may like to reward the public by providing additional tax incentives given the support they garnered in the general elections.

Stay tuned for Budget 2019 on July 5!