The government has been trying to make tax laws simpler by every passing year. However, there are numerous amendments required in tax laws. The Union Budget for financial year 2013-14 will be presented before the parliament on February 28, 2013.
The Finance Minister has promised many reforms expected to combat inflation along with stable tax rates. There may also be some changes in the tax slabs to provide some relief from the ever-growing inflation. Here is a handful of amendments expected and predicted by analysts in the Union Budget 2013-2014.
Rent allowance
All those who do not have their own house and stay in rented accommodation or employees who do not get accommodation / house rent allowance from their employer, enjoy a special tax deduction on the rent paid by them. This deduction is allowed under section 80GG of the Income Tax Act, in which an individual can avail 25 per cent deduction on the rent amount. However, the limit is restricted to Rs 2000 per month and has not changed for many years, and so is expected to change this year.
Moreover, under the Income Tax Act 1961, there exist two dissimilar sets of tax treatments with reference to 'rent-free lodging' provided by the employer. While a government employee only pays the license fee, non-government sector employees who get rent-free lodging from their employees are taxed heavily at 7.5-15 per cent of their salary. It is necessary to maintain uniformity in taxes and a new system needs to be introduced, which would offer equal rights to employees without discrimination.
Standard exemption should continue as in the past and should be given to all employees who are salaried, while transport allowance deduction should increase.
Capital gain scheme
To save capital gain, an individual can invest in capital gain bonds according to section 54EC of the Income Tax Act. The upper investment limit under this section is Rs 50 lakh. In the past, there was no such cap and all transactions related to property were done with white money. With the government making changes to this law few years ago and placing a limit, people have been resorting to unwanted ways to save tax. This cap, hence, is expected to be removed in the forthcoming Budget.
Rebate for senior citizens
The exemption limit for senior citizens over 80 years of age is Rs 5 lakh per annum, which sounds quite reasonable when compared to other taxpayers. However, in case of an income more than the specified amount, they are required pay income tax @ 20 per cent on income up to Rs 10 lakhs. Hence, the tax slabs need to be aligned to benefit super-senior citizens so that they have a fair chance as compared to other taxpayers.
Leave travel assistance
The assistance given by employers to their employees, on which employees avail a tax exemption twice in the span of four years. This exemption is provided under section 10(5) of the Income Tax Act, 1961. The current rules provide that an employee can travel anywhere in the country along with family; however, this travel exemption is not available for travelling abroad and neither for boarding/accommodation. The law needs amendment as to make employees' travel more enjoyable. The exemption should not only cover travelling but lodging and boarding charges as well. Also, instead of giving this concession twice every 4 years, it should be given each year. Keeping in mind the kind of stress employees have to survive every day, the Budget 2013 should include these amendments.
Gift tax
According to the prevalent section 64 of the Income Tax Act 1961, when a person gifts his wife clubbing provisions apply and the wife's income is either clubbed or combined with that of the husband. This law needs to be amended now and at least a reasonable amount should be allowed to be given to a spouse without drawing provisions of the section 64.
Goods and services tax
Amendments are proposed in the goods and services tax this year. According to the Finance Minister if there is consensus among all states on the issue goods and services tax (GST), he will announce certain amendments which will tie all loose ends on the GST.
Financial exemption limit
The financial limit, i.e. the tax limit, is increased once in a while by Finance Minister. However, it needs to be aligned according to the increasing daily expenses. If this part is taken into consideration then the exemption limit for every individual tax payer should be Rs 2,50,000 per annum. A lower exemption limit leads to tax evasion and it has been observed earlier that tax collection increases with a reduction in the tax limit.
All these changes are expected to make way for economic reforms and boost the country's slow growth.
Now, what actually happens will eventually unfold on February 28!
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