Budget 2015: Seven tax changes that need to be tackled

By Kuldip Kumar

As Finance Minister Arun Jaitley readies to present the Budget, there are several demands for changes that he will need to tackle. Besides the popular call for rejigging tax slabs and exemption limits, here are some other areas that have been ignored for years and are begging for his attention.

Exemption limit for allowances

The tax-exempt limits for certain allowances have not been revised for nearly 17 years. So, even as the costs of education, commuting and medical treatment have increased multifold, the limits have remained constant and do not help ease the burden for individual taxpayers. For example, the exemption limit for children’s education allowance has been Rs 100 per month, hostel allowance, Rs 300, and transport allowance, Rs 800, since 1 August 1997. Similarly, the medical reimbursement limit of Rs 15,000 was fixed in 1998-99. Given the inflationary trends, these limits need an urgent revamp.

Leave Travel Concession

Leave Travel Concession (LTC) gets tax exemption for two journeys in a block of four calendar years, with the current block being 2014-17. If an individual fails to avail of this twice in a given block, he can carry it forward to the next block and apply for an additional exemption. The exemption is also limited to the economy class air fare or first class railway fare to a destination within India. However, this needs to be extended to every financial year. It should also bring within its ambit overseas destination as well as expenses for hotel and food.

Standard deduction

There is a need to reintroduce standard deduction to bring the salaried class at par with the self-employed (entrepreneurs/professionals) in terms of certain expenses. These expenses include those incurred to keep abreast of the latest developments in their areas of work or specialisation. Earlier, there was a provision for standard deduction, which was removed in 2005-6.

Car perks

If a car is provided by an employer to the employee for both official and personal use, and the running and maintenance are borne by the former, the benefit is taxed concessionally. It is Rs 1,800 per month where the cubic capacity of the car does not exceed 1.6 litre, and Rs 2,400 per month if it exceeds 1.6 litre. Besides, Rs 900 is added to the taxable value if a chauffeur is also provided. This is irrespective of the actual cost incurred by the employer in running and maintaining the car.

On the other hand, if the car is owned by the employee and used for both official and personal purposes, and the running and maintenance are met by the employer, the exemption is limited to Rs 1,800/2,400 per month depending on the capacity, besides Rs 900 for the chauffeur. So, if an employee is provided a chauffeur-driven car (more than 1.6 litre) for both official and personal purposes, and the employer incurs an expenditure of Rs 50,000 per month on running and maintenance, the employee will pay a tax of Rs 3,300 (Rs 2,400 + Rs 900).

However, in a similar situation, where the car is owned by the employee, he will have to pay tax on Rs 46,700 per month (Rs 50,000 – Rs 3,300). To rationalise this, the government should bring at par the tax treatment of the employee-owned car with that of the car provided by the employer.

Housing deduction for self-employed

Currently, a deduction of up to Rs 2,000 per month is allowed under Section 80GG for the rent paid by an individual who does not receive the House Rent Allowance (HRA) or who is self-employed. This limit was fixed in 1998 and has not been revisited though the rental has increased manifold since then. Hence, it needs to be raised appropriately in keeping with inflation.

ESOPs taxation for corporates

The shares issued to employees free of cost or at concessional rates under the Employee Stock Option Plan (ESOP) are currently taxed on the date of allotment, on the difference between the fair market value and the actual payment by the employee. When employee sells the shares, he pays the capital gain tax on the difference between the sale price and the price on which he paid tax at the time of allotment. In case of listed shares, long-term capital gain is exempt if STT has been paid.

The tax is currently levied on notional benefit though the actual gain is not realised by the employee. It is possible that the employee does not have money at the time to pay tax or that the actual sale of shares results in a loss due to a fall in market price in the future. Since the tax already paid cannot be set off against the capital loss, the employee suffers a double loss—tax outgo and loss on sale.

Till 2004-5, there was a onepoint taxation at the time of sale of shares, not at the time of allotment, if the plan was in accordance with the stipulated guidelines. For listed shares, where STT had been paid, no tax was levied.

At a time when the government wants to realise its ‘Make in India’ vision and is trying to attract and retain talent, the companies will benefit from the restoration of the earlier taxation system.

80TTA deduction for interest on term deposits

Under Section 80TTA, deduction is available on the interest that is earned on savings account deposits up to Rs 10,000. This was introduced in 2012-13 to provide relief to small taxpayers. However, this limit should be increased to Rs 15,000 and bring within its ambit interest on time/fixed deposits as well.

This will not only help the individuals whose savings accounts are linked to fixed deposits to earn a higher interest, but the senior citizens as well since fixed deposits are favoured modes of investment for most of them.



(The author is leader, Personal Tax, PwC India)