If tax reforms are put in place, India will take off

Pramod Achuthan, tax partner, EY India

28 February 2015 was the day of reckoning for the Modi government and perhaps the only event of late that drew eyes away from the Cricket World Cup. In its first nine months in office, the Modi government announced a raft of initiatives to boost manufacturing, improve sanitation, slash red tape, increase foreign investment and more. All worthy goals. What was lacking upto now was a coherent strategy to tie these plans together.

In this backdrop, the finance minister's announcements pertaining to the budget have introduced some very positive changes for the Aam Aadmi with a clear road map for the future. His proposals touched various aspects of the country's financial health with emphasis on building infrastructure, creating jobs and promoting entrepreneurship while taming inflation.

Jaitley had given reasons for individual tax payers to smile in his first budget in July last year as he raised the exemption limit of income tax from Rs 2 lakh to Rs 2.5 lakh for all individual tax payers below 60 years. However, no changes have been proposed this year in the various income tax slabs. Further, seeking to simplify the tax regime, the FM announced that Wealth Tax will be abolished. However, in order to compensate for the loss of revenue, the surcharge rate has been increased by 2% (i.e. 12% from the existing 10%) for individuals having income of Rs 1 crore or more. Though the FM did not raise the exemption limit under section 80C, he proposed to provide that investment contribution by parents and legal guardians to Sukanya Samriddhi Scheme, in the name of the girl child, will be eligible for deduction and any payment, both the interest accruing on deposits as well as withdrawal from the scheme, shall not be liable to tax.

Deduction under section 80CCC for pension fund has been increased from Rs 1,00,000 to Rs 1,50,000. To provide social safety net and the facility of pension to individuals, an additional deduction of Rs 50,000 under section 80CCD is proposed to be provided for contribution to the New Pension Scheme and this would be above the existing deductions. Jaitley stated the objective was to enable India to become a pensioned society instead of a pensionless society.

With a view to promote savings and to promote health care among individual tax payers, the FM proposed to increase the limit of deduction of health insurance premium under section 80D from Rs 15,000 to Rs 25,000 and for senior citizens from Rs 20,000 to Rs 30,000. For very senior citizens above 80 years of age, not eligible to take health insurance, deduction has been allowed for Rs ____________. The deduction limit of Rs 60,000 under section 80DDB towards expenditure on account of specified diseases of serious nature has been enhanced to Rs 80,000 in case of very senior citizens. Also, prescription can be obtained from a specialist doctor for availing deduction under this section instead of a certificate from a doctor working in a government hospital as is currently required.

Additional deduction of Rs 25,000 will be allowed for differently abled persons under Section 80DD. The FM has also announced 100 per cent deduction for contributions to the Clean Ganga Fund and the Swachh Bharat Kosh under section 80G.

Further, transport allowance exemption is being increased from the age old Rs 800 per month to Rs 1,600 per month bringing some relief to the salaried class.

Also, the employees will be given the option to contribute either to the Provident Fund Scheme or to the New Pension Scheme and contribution to Provident Fund for the employees below certain income. The FM also said that the black money reduction efforts shall be accelerated and proposed 300 per cent penalties for concealment of taxes pertaining to income from foreign assets along with stringent imprisonment terms.

Overall, the budget has a lot of positive changes and with GDP growth of 8.5% forecast for next year and the aim of double digit growth in the near future, the Indian economy is poised to fly.

The views expressed in this article are personal to the author