Budget 2017: Standard deduction may make a comeback, and other tax expectations

Amidst all the debate around demonetization and the sacrifices made by the Aam Adami, the FM is likely to bring in cheer for taxpayers in the Budget by offering tax incentives to boost consumption and accelerate economic growth which has slowed down.

While salaried class and individual taxpayers have high hopes from the FM for significant tax relief, the FM is also targeting to increase the tax base by capturing larger population under the tax umbrella.

The FM will, therefore, need to strike a fine balance.

The FM may either increase the basic tax-free limit or reintroduce standard deduction from salary income and parallelly do away with some exemptions.

It is expected that the basic exemption limit will be increased from existing Rs 2.5 lakh to Rs 5 lakh. At the same time, to ensure that people in the Rs 2.5 lakh-plus bracket continue to be part of the tax base, there could be some kind of nominal cess or surcharge on such individuals.

Also, some of the exemptions/deductions already enjoyed may be parallelly removed in sync with the objective of simplification and one needs to wait and watch to see where exactly such changes are made.

Given the above, and with only 24 lakh people declaring income in excess of Rs 10 lakh, which seems surprisingly low, it does not seem that the peak tax rate may be reduced.

Coming now to some specific items, we first look at Leave Travel Allowance. Here, with a dual goal in mind to provide some tax relief and also to boost tourism in India, the FM may amend provisions to make the exemption available in respect of at least one journey each year instead of the current provisions of allowing two journeys in the block of four years and also extend the allowance to some ancillary expenses like hotel and food. It is expected that the limit under section 80C may be increased from Rs 1.5 lakh to Rs 2.5 lakh.

The writer is tax partner, people advisory services, EY India