With Budget 2013 around the corner, there is growing expectation of favourable changes in the tax regime. Given the soaring inflation in 2012 and the resultant all-round increase in cost of living, any changes that will result in an increase in disposable cash would be welcome. People realise that managing the fiscal deficit and generating funds for welfare schemes ahead of the 2014 general election would probably be a key priority for the Government; so, any significant cut in tax rates would be a difficult proposition. However, many believe the Government will implement at least some recommendations of the parliamentary standing committee on the Direct Taxes Code, which were submitted in March 2012.

Here are a few suggestions to help ease the burden on the common man.

Raise the exemption limit and reduce the maximum marginal tax rate

The current basic exemption limit of Rs 2 lakh should be raised to Rs 3 lakh. Further, the peak tax rate of 30 per cent, which is triggered at an income slab of Rs 10 lakh, is on the higher side as compared with other countries such as Russia (13 per cent), Hong Kong (17) and Singapore (20). The peak rate should apply at a higher income slab of Rs 20 lakh, which is in line with the recommendations of the parliamentary standing committee.

House Rent Allowance exemption

For HRA exemption, a different comparable is used for Tier-1 cities (50 per cent) as against Tier-2 cities (40 per cent). However, Tier-2 cities have also caught up in terms of cost of living. The comparable could be standardised for all cities at 50 per cent.

Medical reimbursements

Currently, the exemption for medical reimbursements is limited to Rs 15,000 per annum for self and family members. With increasing healthcare costs, this limit could be increased to Rs 50,000 per annum, as also recognised in the proposed DTC.

Interest deduction for housing loan

Considering the rising prices of real estate, buying a dream home is out of reach of the common man. The Government should increase the annual deduction for interest payment on housing loan from Rs 1.5 lakh at present to Rs 5 lakh for a self-occupied property, as there has been no revision since 1999, and interest rates and property capital values have increased. This would also encourage investment in the real estate sector.

Transport allowance

The transportation allowance granted by an employer to employee for commuting to work is tax-free up to Rs 800 per month. This limit could be raised to at least Rs 3,500 per month, as there has been no revision since 1997, and petrol and diesel prices have spiralled up since.

Increase in investment limit under section 80C

Though avenues for investment under section 80C have increased over the years, the limit of Rs 1 lakh has remained unchanged. This could be raised to Rs 3 lakh to encourage long-term savings by taxpayers. While the Government in Budget 2012 introduced the Rajiv Gandhi Equity scheme providing a maximum tax saving of Rs 5,000, it is available only to first-time investors with annual gross income not exceeding Rs 10 lakh and a lock-in period of three years.

Inclusion of all education expenses under section 80C

Currently only tuition fee paid to an educational institution in India is eligible for exemption under section 80C. The scope of deduction should be extended to cover all education expenses including admission fee, hostel expenditure and so on. Further, with the increase in the number of private institutions, cost of education in India has become very high as compared to the limit of Rs 10 lakh under section 80C. A separate limit under section 80C may be provided for education expenses above that limit.

Individual taxpayers look up to the Finance Minister to empathise with them and provide the tax relief needed to augment their stretched financials.

Deepika Mathur is Senior Manager and Renuka Garg is Deputy Manager, Deloitte Haskins and Sells

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