Mumbai, July 06: A populist budget? A disaster plan? Or a mixed offering with some portions that are good and some that are not? The popular belief is we will be seeing the third alternative today as finance minister Pranab Mukherjee unfurls the pronouncements.
First, for the salaried class: Mukherjee’s predecessor P Chidambaram had in his 2005 budget speech removed the standard deduction available to salaried employees. But income tax experts feel that the deduction should be reinstated.
“Homeowners/landlords get a 30% standard deduction. Businessmen can set-off every expense that they incur to earn income. Then why treat the salaried differently?” asked Sandeep Shanbhag, director, Wonderland Consultants, a tax and investment advisory.
A standard deduction of Rs30,000 or 40% of income, whichever lower, was earlier available.
Experts also believe that the Rs1.5 lakh limit for paying income tax is just too low and needs to be increased. “The threshold limit for personal taxation should increase. Today, there is no point in taxing a person earning up to Rs3 lakh,” says Tarun Ghia, partner at CA firm TMG & Associates. Property prices have gone up over the last few years, but the Income Tax Act hasn’t kept pace with that. The deduction available for interest payable on a home loan is still limited to Rs1.5 lakh. “Given spiralling property prices, the ceiling on interest deduction of Rs1.5 lakh is once again not in touch with reality,” Shanbhag said.
He also said transport allowance deduction “has remained at an absurd level of Rs800 per month. This is almost insulting to the taxpayer. There is an urgent case for tripling the limit to Rs2,400 per month in the very least”.
Tarun Ghia, partner at chartered accountancy firm, TMG & Associates, says it is imperative that the limit for personal taxation should increase. “Today, there is no point in taxing a person earning up to Rs3 lakh per annum. Investments into industry, especially infrastructure, should get tax incentives,” Ghia said.
Beyond the personal finance issues, famed investor Rakesh Jhunjhunwala said the focus of the budget should be to achieve higher growth by channelising investment. “Government should allow foreign direct investment in a phased manner across sectors such as defence, retail and insurance. Also, pension reforms need to be formulated. Club all subsidies (NREGA, fertiliser, fuel etc) and pass on benefits to the needy (in cash). This could help increase consumption and correct mispricing of resources,” Jhunjhunwala said.
On government finances, Saugata Bhattacharya, chief economist, Axis Bank, said the expectations are that there could be some kind of weakened deficit. “There will not be a massive expansion of deficit or borrowing programme. The finance minister is likely to mix fiscal prudence with economic growth. We are expecting the deficit to be 6.2-6.5% of the GDP,” he said.
On revenues, Bhattacharya expects tax collection targets to be more aggressive than in the interim budget because the prospects for industries is better now compared to then.
“Customs collections are higher, excise collections are improving, so targets will be more aggressive,” he said.
Ashok Wadhwa, MD, Ambit Capital, said focus on infrastructure and education is what will spur overall growth. “Generic budgets are not a solution. Sector-specific needs need to be considered. Along with growth, execution should be given equal importance and should be on a timely, cost-competitive basis,” he said.
–Agencies