Budget 2015 Proposals for Taxation, ‘Big Bang’ Or Subtle Reform

In what was easily one of the most keenly watched budgets in the past decade and a half, the Finance Minister, Mr.ArunJaitley announced a slew of measures purported to be the necessary and the eagerly looked forward to ‘Big Bang’ expected to bolster the economy. The Modi government, having spent nine months in office, was beginning to lose the momentum it had gained initially on the tide of its massive electoral victory and the consequent euphoria. Even though the nine month report card of the Modi government arguably called for a pat on the back, it lacked direction and the punch to make it surge forward with the same gusto that was visible in the initial stages of government formation.

The Budget 2015, while not the ‘Big Bang’ of reforms expected from the Modi government, calls for an applause for its clarity of vision and focus on improving the financial health of the economy by giving a boost to infrastructure, reforming tax structures and rates, while at the same time keeping the leash tight on inflation. Among a slew of measures intended to promote growth, the 2015 Budget introduces a plethora of amendments in the personal taxation regime including provisions for savings, pension etc.

The Budget 2015 has proposed the abolition of wealth tax from the financial year 2015-16. The proposed measure is intended to give relief to taxpayers from the excessive and burdensome compliance requirements, in asking them to value all their taxable assets and file a separate return for the purposes of wealth tax. The effect of the proposal would also be seen on the side of the government, as tax department will be spared the cumbersome record keeping and other administrative mechanisms. Even though some may accuse the provision has merely benefitting the ‘super-rich’, it is noteworthy that the taxable assets will now be subject to mandatory disclosure in the income tax return of taxpayers.

While abolishing the burdensome wealth tax, the government will now charge an additional surcharge of 2% for taxpayers whose income exceeds Rs. 1 crore. The effect of the said provision will be to hike the surcharge from 10% to 12% on an income of more than Rs. 1 crore. Thus, in another provision affecting the ‘super rich’, the government has sought to create additional revenue as the levy of additional surcharge will hike the maximum marginal rate of taxation from 33.99% to 34.61%. However, despite the increase in the personal tax exemption limit from Rs. 2 lakhs to Rs. 2.5 lakhs in July 2014 Budget, no changes have been introduced in the personal income tax slab this year.

Even though the Finance Minister has not raised the exemption limit under S. 80C of the Income Tax Act, 1961, the Budget 2015 proposed that the investment contribution by parents and legal guardians to SukanyaSamriddhi Scheme, for the girl child can be deducted, while any amount of payment, in the realm of interest accruing on deposits or withdrawal from the scheme, will not be liable to income tax.

However, under Section 80CCC the deduction for pension fund has been increased from Rs. 1,00,000 to Rs. 1,50,000. The Budget also provides for a further deduction to Rs. 50,000 under Section 80CCD which is to be included as a contribution to the New Pension Scheme. The additional deduction is introduced in order to provide social security and to increase the number of individuals with a pension plan in the country. The said deduction shall be over and above the current and existing deductions.

Further, in order to give a fillip to savings and health care with respect to individual tax payers, the Budget proposes that the limit of deduction for the health insurance premium under Section 80 D from Rs. 15, 000 to Rs. 25, 000. The said limit for the senior citizens will be hiked from Rs. 20,000 to Rs. 30,000. Further, in order to promote more savings for contribution towards health insurance premiums, a deduction up to the extent of Rs. 60,000 under Section 80DDB for expenditure towards specified serious diseases, has been enhanced to Rs. 80,000 with respect to very senior citizens. Further, in order to avail the deduction under this section a certificate from a doctor working in a government hospital is not required any more. Rather, a prescription obtained from a specialist (doctor) will be sufficient.

Providing much needed although not sufficient, relief to differently abled persons, a further deduction up to Rs. 25, 000 will be allowed. Moreover, a 100 per cent deduction for any contributions to the Clean Ganga Fund and the Swachh Bharat Kosh with respect to Section 80G is allowed. In another provision the exemption for transport allowance has been doubled from Rs. 800 to Rs. 1,600 per month. The increase in travel allowance may act as some respite to the salaried class.

Further, employees are to be given a choice to contribute either to the PF Scheme or to the New Pension Scheme and contribution to PF for employees below certain income. The Finance Minister observed that post-Budget 2015, the endeavour to curb black money will be given a fillip by introducing a 300% penalty for concealing taxes with respect to income from foreign assets, in combination with strict and heavy imprisonment terms.

All in all, the Budget, though not a ‘Big Bang’ reform bonanza expected from the Modi government, it is a step in the right direction to provide for a steady and favourable growth outlook.

by Siddhartha Singh.