Middle-class taxpayers will be a little disappointed

There were some goodies for individual taxpayers, with a few negatives

Taxpayers had high expectations of the first full budget of the Modi government, given the hype preceding it. When one finally sees the budget provisions, so far as individual taxpayers are concerned, the budget is a mixed bag—offering some goodies, though not much, though with a few negatives.

The good parts first. The abolition of wealth tax is indeed welcome. It had more of a nuisance value in terms of procedures, though the tax payable was not significant. One had to value one’s jewellery at market rates every year—once in 4 years, get it valued by a registered valuer, for instance. One had to value motor cars, which was at times disputed by the tax authorities. A recent Supreme Court judgement in Amrit Banaspati Co.’s case had created a doubt as to whether the value of a house property could be taken at cost (as most taxpayers did) even when the market value was substantially higher, or whether one had to take the fair market value of the property each year (which valuation would also have led to disputes!). Fortunately, all that will now no longer be required—most taxpayers would be happier paying the additional 2% surcharge. The only problem is that this additional surcharge would also apply to Dividend Distribution Tax, and would therefore result in lower dividends for all shareholders, even those who are not so well off or who may never have had to pay wealth tax.

The increase in the mediclaim deduction limit to 25,000 was long overdue—the limit of 15,000 having been fixed in 2008. With medical cost inflation having been so high, the increase is perhaps inadequate. Not only that, the deduction for medical expenses of 30,000 for very senior citizens (above 80 years of age) is not in addition to the mediclaim deduction of 30,000 that senior citizens get—it is an alternative. So the total mediclaim deduction that a person would get would be 25,000 for himself, his spouse and children plus 30,000 for his senior citizen parents.

The increase in deduction amounts for disability and severe disability from 50,000 and 1 lakh to 75,000 and 1.25 lakh, respectively, is also welcome—the limits were last fixed in 2004 and 2010, respectively. Unfortunately, the limit for deduction of expenditure on chronic diseases remains unchanged at 40,000 (and 60,000 for senior citizens)—the only reliefs there are fixation of a higher limit of 80,000 for very senior citizens, and removal of the onerous requirement that the certificate had to be only from a specialist employed in a government hospital—any specialist’s certificate will now do.

On the investment front, a relief provided to investors in mutual funds is an exemption on consolidation of one mutual fund scheme with another similar scheme. This was so far regarded as a transfer with possible capital gains implications. Now, this would no longer be a taxable transfer, and the date and cost of acquisition of the units in the new scheme would relate back to the date and cost of acquisition of units of the original scheme.

Interest on the Sukanya Samridhi Scheme has been granted exemption from tax, besides the contribution being eligible for deduction under section 80C. An additional incentive of deduction is being given for contributions to the National Pension System up to 50,000, over and above the contribution of up to 10% of salary. All persons, not just employees, can get this deduction, over and above the deduction of 1.5 lakh under section 80C for life insurance premium, provident fund contributions, etc.

On the tax deducted at source (TDS) front, there is again a mixed bag of amendments, effective 1 June 2015. TDS will now apply to interest on bank recurring deposits, besides interest on fixed deposits. Shareholders of co-operative banks would no longer get exemption from TDS—they would be treated like any other depositor. Such depositors will now either have to ensure that they furnish Form 15G or 15H, or suffer TDS on their interest incomes. The good amendment is that Form 15G or Form 15H can now also be furnished for taxable amounts received in respect of life insurance policies.

The measures on black money are long overdue. One will have to wait and see the provisions of the new proposed laws to see how effective they would be, particularly in the context of domestic black money.

All in all, most middle class taxpayers would perhaps be a little disappointed, given their high expectations from this budget.

Gautam Nayak is a chartered accountant.