INDIVIDUAL TAXES

1. Tax Rates and Income Slab

Increase in basic exemption limit — Currently, income up to 160,000 rupees is exempt from tax for individuals. For resident women and senior citizens, the limit is 190,000 rupees and 240,000 rupees respectively. Considering the pressure from rising inflation, it is likely that the government will increase the basic exemption limits, though no change in tax rates is anticipated.

2. Deductions/ Exemptions/Tax Credits

Limit for deduction under Section 80C — Currently, a deduction of up to 100,000 rupees is allowed under Section 80C for different investments/expenses incurred by individuals. It is noted that the Indian central bank is pursuing a tight monetary policy. It is therefore expected that the limit will be increased with a view to spur small savings/investment.

Medical reimbursement by the employer — Non-taxable medical reimbursement by employers is limited to 15,000 rupees per annum for an individual and their dependents. It is felt that the government may give in to longstanding complaints that the exemption amount is very low considering the substantial increase in the cost of treatment over the years. Accordingly, it is expected that this limit will be suitably revised upwards.

Deduction for interest on housing loan — Presently, a deduction of up to 150,000 rupees for interest on borrowed capital for an owner-occupied house is available only if the acquisition or construction of such a property is completed within three years from the end of the financial year in which the capital was borrowed. Most housing projects have been delayed beyond their original completion dates; in general they are taking more than three years, due to lack of funds on the part of the developers/ realty companies, which is beyond the control of the individual who has taken the loan. This condition does not apply when a property is bought to let, and therefore, to remove this disparity, it is expected that the time period of three years may be increased to five years.

Employer’s contribution to Superannuation fund —The Finance Act, 2009 imposed a tax on employees for their company’s contribution to approved superannuation funds in excess of 100,000 rupees. It is expected that in view of the current government’s desire to encourage long-term private savings, and taking into account the fact that earlier employer superannuation fund contributions were not capped, a further relaxation in the annual monetary limit may be considered.

Refund —There is considerable dissonance among the general public at the inordinate delay in the processing of tax refunds. Individuals pay tax for the current year, while simultaneously waiting for refund claims from the tax authorities for the earlier year(s). In order to provide relief to small taxpayers, it is expected that the government will come up with a proposal to release all small value refunds before the end of the financial year in which the tax return is filed.

Allowability of foreign tax credit while determining tax deduction on salary —Currently, there is no provision for reducing the estimated Foreign Tax Credit (FTC), available to employees for taxes paid in the other country while withholding taxes in India. The government may include specific provisions in the statute allowing FTC at the same time as withholding taxes from income chargeable under the heads of salary in India. Similar provisions are already there in advance tax provisions.

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Read More about Individual Taxpayers from Budget 2011