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What do taxpayers want from the Budget?

Satya Sontanam | Updated on January 21, 2018 Published on January 21, 2018

DINESH REDDY, Finance professional

THAYI KARTHIK, Hyderabad-based Chartered Accountant

RAVI KUMAR, Senior IT consultant

SURYANK BAITINTI, Chartered Accountant

Almost everyone Portfolio spoke to is hopeful of an increase in the tax exemption limit to at least ₹2 lakh

Budget 2018 is round the corner. With speculation in the air about an increase in the Section 80C tax deduction limit, taxpayers are hoping for minimum ₹50,000 hike from the current levels at ₹1,50,000. Portfolio sounded out a few professionals on their budget wish list in respect of tax deductions under sections 80C and 80D of the Income Tax Act, 1961.

80C limit not enough

As of now, for FY2017-18, an individual or an HUF (Hindu Undivided Family) taxpayer can claim deduction from tax under this section to an extent of ₹1,50,000. Deduction is allowed if the amount is invested in tax saving avenues such as PPF (Public Provident Fund), Provident Fund contribution, ELSS (Equity Linked Saving Schemes), NPS (National Pension System ), five-year fixed deposits, and NSCs (National Saving Certificates).

Apart from the investments, expenditure such as children’s tuition fee, life insurance premium and principal repayment of the home loan are also covered under this section. Budget 2015 introduced a new scheme under section 80CCD (1B) that allows a taxpayer additional deduction of ₹50,000 towards contribution to NPS Tier 1 over and above ₹1,50,000 under Section 80C.

Chirag Chauhan, founder of Expertmile.com, points out that the recent relaxation under NPS to withdraw the partial amount up to 25 per cent after three years from the earlier 10 years is to encourage more investment in NPS. But he is batting for more tax breaks for this pension product. “Since I have already exhausted my ₹1,50,000 under section 80C and additional benefit of ₹50,000 under section 80CCD(1B), even if I invest more in NPS, there’ll be no tax benefit,” he says.

Sharing Chirag’s view, Dinesh Reddy, a finance consultant, says the Sukanya Samriddhi Account, launched to encourage the girl child’s education and meet marriage expenses, is a thoughtful move but needs a separate tax break. “Grouping this scheme under Sec 80C deduction list does not serve any purpose,” he asserts.

He is also concerned about the tax exemption limit provided for the chidren education allowance, which is ₹1,200 per child per annum for a maximum of two kids. While this is the exempted amount of allowance, tution fee spent can be claimed as deduction under section 80C. He feels that in the current scenario where education expenses are skyrocketing, there is a need to reconsider the exemption and deduction limits provided for the education allowance and tuition fees.

Ravi Kumar, who works as senior IT consultant for a Bengaluru-based concern, says that his 80C limit is utilised mainly for the principal amount repaid on home loan. “Considering the cost of buying a home in a metro city like Bengaluru, “I feel that the repayment of principal amount on home loans should be brought out of 80C deduction list and should be treated separately.” He also feels that additional benefits should be given to salaried employees as they incur higher tax burden.

But textile businessman Vijay doesn’t agree. Vijay says his business was hit heavily by demonetisation and GST, hence he expects raising of 80C deduction limit to reduce taxes. He argues that, “salaried individuals have an edge over businessmen because of the certainty of income. Also, the PPF (Public Provident Fund) which we invest in gave a return of about 8 per cent in FY 2016-17 while the employees’ provident fund (EPF) gave a return of 8.65 per cent that year.”

Returns on popular fixed income schemes such as NSC and PPF are 7.6 per cent, and it is 8.1 per cent for the Sukanya Samriddhi Account.

Under section 80C, ELSS is one of the investment options with equity exposure. These are mutual fund schemes that invest atleast 65 per cent of their assets in the stock markets. Return on these schemes could be 12 to 15 per cent.

But as the funds’ performance is subjected to market volatility, returns are not guaranteed. They come with a lock-in period of three years and any gains made on investments held over one year are tax-free.

Bengaluru-based stock market trader Arjun Atluri also wishes for a hike in 80C deduction limit as this could further boost liquidity in the stock market. “Higher liquidity helps in faster recovery after corrections in the market,” he says.

Under Section 80D of the Income Tax Act, an individual or an HUF can claim tax deduction of up to ₹25,000 for the health insurance paid for the taxpayer or his family. An additional ₹25,000 can be claimed if the insurance is taken for the parents of the taxpayer. Further, one can get an additional deduction up to ₹5,000 if any of the insured is over 60 years.

Deduction can also be claimed for preventive health check-up undergone by the taxpayer or his family and parents upto Rs 5,000 which is subsumed in the above limits. Medical expenditure for those beyond 80 years and uninsured is allowed as deduction up to ₹30,000.

Deduction for medical expenses

Thayi Karthik, a chartered accountant based in Hyderabad, says most taxpayers do not exhaust the limits in Section 80D. “Salaried employees who are covered under the group medical claims provided by the corporates hardly spend ₹25,000 on the additional health insurance. Therefore I feel it is better to increase the tax deduction limit under section 80C than to revise the limits of section 80D. Rs 30,000 allowed as medical expenditure for uninsured senior citizens should also be reconsidered taking into account inflation and rising medical costs.”

Suryank Baitinti, also a chartered accountant, is of the view that besides the deduction of ₹5,000 for preventive health check-ups, medical expenditure should be allowed as deduction if genuine bills are provided. He also thinks that section 80DDB that allows deduction for the amount spent on specified medical treatments has to be reconsidered to include skin diseases. “There are a few chronic skin diseases like psoriasis and vitiligo which affect patients emotionally and physically. Treatment of such diseases also costs a lot. There should be some relief to such patients, at least in the form of deductions,” he stresses.

Published on January 21, 2018

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