How budget 2017 can ease pain of demonetisation via income tax sops
WHILE the administrative machinery of the government is in full force and working overtime to bring tax evaders to book, an important side effect of demonetisation which cannot be overlooked is some hardship caused to honest taxpayers.
To soothe the pain, the forthcoming Budget 2017 looks like the ideal platform for the government to step in and introduce measures which can seem an encouragement to citizens who have stood by it in bearing the aftermath of demonetisation. The government also has to look at measures to incentivise disclosure and reporting processes so that people are encouraged to bring the money into the system and there are no attempts made to get away with non-reporting.
A number of direct tax sops for individuals can be looked at by the government.Increase in tax exemption ceiling from R2.5 lakh to R4 lakh. This would give the common people more income for consumption which would help boost demand that seems to be under pressure after demonetisation.
The increase in tax exemption ceiling can be coupled with a change at the point at which 30% tax rate kicks in, which may be increased from R10 lakh to R15-20 lakh. Further, there can be reduction in direct tax rates from 35.53% to around 28% for taxpayers having income exceeding R1 crore.
A higher tax exemption slab and a reduced tax rate may encourage more people to file their tax returns which is important—considering that less than 3% of the population files income tax returns in India.
Incentives for digital payments can be included as there have been serious efforts by the government to encourage people to move towards a cashless economy ever since the launch of the demonetisation exercise.
Following this, in Budget 2017, the government may announce a string of measures to take India on the path of a cashless economy by giving incentives to merchants for promoting use of plastic money and income tax benefits could also be offered to those making payments electronically.
Section 80C has a maximum limit of R1.50 lakh and most of the investments come under this bracket. The finance minister may revisit this and increase the limit up to R2-3 lakh. This would also encourage individuals to save more and contribute towards the economy.
The Budget could look at easing the compliance burden on individual assessees by moving most processes online. The objective will be to further cut out the physical interface between the taxpayer and the department. This may have to be balanced by the requirement of more disclosures in the income tax return forms.
The common man is expecting a simple and positive outcome on the tax front in the Budget to compensate the inconvenience caused by demonetisation.
Source: The Financal Express
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