Union Budget 2014-15

About Union Budget 2014-15 Union Budget 2014-15

About Union Budget 2014-15 For countless Indians, budget announcements are almost about whether or not taxes have gone up or down, however this year, the joy among tax-payers is palpable because the new Modi government is predicted to meet its promise of “acche din”.

According to Barclays, company and private financial gain taxes, area unit on the high aspect in Asian countries compared with most of its peer economies, whereas the breadth of its tax web is comparatively narrow. High earners among the country pay further taxes (34 percent) than their counterparts in Singapore (20 percent) and Canada (29 percent), and solely marginally but high earners among the United States (40 percent).

1. Raise income tax slabs:  Presently, there’s no tax for gain up to Rs. 2 lakh. per PricewaterhouseCoopers (PwC), the exemption limit on income tax should be hiked to Rs. 3 lakh. Deutsche Bank says any increase in income tax slabs can lower tax outgo and increase income. The move might result in enlarged spending required at a time once the Indian economy is facing its worst delay in over twenty-five years.

Probability=low. Personal income tax is a very important revenue supply for the govt. consistent with edelweiss, tax contributed to 2.1 percent of India’s GDP within the year 2013-14, i.e. roughly a similar amount the govt spent towards food, fuel, and chemical subsidies within the same year.

If Mr. Jaitley raises tax slabs, he will have to make up for revenues by i) cutting subsidies, which might be politically tough; ii) hiking company tax, which will again be tough as a result of the economic slowdown; iii) hiking indirect taxes, which is able to fuel inflation and hurt the economy.

So, analysts say Mr. Jaitley could accept the established order as so much as raising tax slabs cares.

2. Hike deduction limit under Section 80C of the Income Tax Act: This section gives tax breaks to long-term financial savings instruments such as housing loan repayment, five-year and above tenure fixed deposits, provident funds (PFs), and life insurance policy premiums. According to Ambit, Mr. Jaitley should incentivize financial savings by expanding the current Section 80C limit from Rs. 1 lakh to Rs. 1.50 lakh. PwC has called for doubling of deduction under 80C to Rs. 2 lakh. An increase in 80C limits will increase domestic savings, which can be utilized for infrastructure development.

Probability=low to moderate. A Rs. 1 lakh hike in the 80C limit will lead to a revenue loss of Rs. 30,000 crore.

3. Increase in exemption limit for housing loan interest: Currently, interest up to Rs. 1.50 lakh on home loan for a self-occupied property is tax-free. Analysts say the current ceiling should go up to Rs. 4 lakh or Rs. 5 lakh to account for the sharp rise in property prices over the last ten years. Enhancing the interest exemption limit will increase affordability and benefit the entire real estate sector, which contributes nearly 6 percent to the GDP.

Probability=low. Property prices have not corrected despite severe slowdown and rising inventories. The move may help developers more than buyers.

4. Up medical reimbursements: to Rs. 50,000 from Rs. 15,000 now, conveyance allowance to Rs. 2,500 from the present Rs.800: Limits on these sub-heads have not changed for the last many years and have lost their relevance. Healthcare costs have gone up substantially and so have fuel costs, necessitating a rethink over these exemptions.

Probability=low to moderate. Mr. Jaitley may consider raising medical and conveyance limits if he does not make major changes in the above three laws.

5. Increase tax on high earners: Currently, individuals (42,800 to be precise) whose taxable income exceeds Rs. 1 crore, have to pay a surcharge of 10 percent. Mr. Jaitley may increase the tax rate on these high earners or may impose an even higher tax on people earning more than Rs. 10 crores annually to compensate for revenue shortfall for any of the above-mentioned sops.

Probability=low to moderate. Ambit says the government may create a fourth income tax slab at a higher rate.

The government can also announce changes in indirect taxes that will impact many consumers. Mr. Jaitley is expected to slash duty on gold, which currently stands at 10 percent. Gold duty was hiked to dis-incentivize imports and bring down the current account deficit. Both objectives have been met. Excise duty on cigarettes may go up by 15-20 percent, analysts say. This will make cigarettes and other tobacco products costlier.

Probability=high. Health Minister Harsh Vardhan has been repeatedly demanding a substantial hike in excise duty on cigarettes and other tobacco products.

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