The Finance Minister, Nirmala Sitharaman, has indicated that the interim Budget, to be presented on February 1, will not contain any major announcements or changes. The government, however, could still consider bringing some changes to provide an impetus to the economy as well as increase the disposable income in the hands of individuals.

Real estate prices have risen significantly over the last few years forcing individuals to take larger loans for purchasing property. Homebuyers need to make EMI payments and pay rent until the property is ready for use. The government may consider increasing the present limit of ₹2 lakh in respect of deduction towards interest on self-occupied property. Similarly, expenses on children’s education and medical treatment now form a significant proportion of the overall household expenses. A separate deduction (apart from ₹1.5 lakh under 80C) may also be considered to ensure the issues of the middle class are taken care of.

Owing to GST, proper record keeping and issuance of invoices regularly to all customers — even by small and medium businesses — is now prevalent. However, a large part of their cash flows gets invested in receivables, thereby resulting in slow churning of capital and latent loss of interest owing to delays in payment by customers. The government may consider: (i) setting up of a government owned bill discounting agency; and (ii) a mechanism where a lower rate of tax deduction may be opted by the taxpayer against an undertaking of timely payment of advance tax. These may significantly increase the funds available to the SME sector.

Conduct of business through a combination of online as well as physical presence is now increasingly becoming the norm. A well-thought-out regulatory and tax framework for such businesses may help reduce uncertainties as well as increase the tax collection and compliances.

The industry is also desirous of changes in the dividend taxation regime for small and family-owned companies. Companies currently pay corporate tax on their income while shareholders suffer tax at higher rates on dividends distributed to them. That leads to the money of entrepreneurs getting stuck in the company and their being unable to manoeuvre funds without paying significant amount of taxes. A tweak in the laws to relax the compliance and tax burden on small family-run companies up to a threshold of turnover may help generate employment by promoting entrepreneurship.

The writer is Partner & Head of Practice (Direct Tax), JSA Advocates & Solicitors

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