Budget 2019 may bring pro-poor tax sops, tightening of tax administration: Sonu Iyer, EY India

The coming budget is unlikely to see across the board major giveaways on the personal tax front as the finance minister has very little financial leeway, said Sonu Iyer, partner and leader, People Advisory Services, EY India. Personal tax relief measures, if any, are likely to be focused on the poor and middle-income group just like tax relief being restricted to those with incomes upto Rs 5 lakh in the last budget, she said. Infact, there may be measures to tighten tax administration, Benami Act and discourage cash withdrawals, she added.

Sops for real estate sector may also be looked at in order to boost housing, employment and growth, she explained. Other areas where the budget may bring some changes, according to Iyer, include: Restriction of the Rs 1 lakh relief on equity LTCG, interest on housing loan, deduction under Section 80C, interest from a savings bank account, presumptive taxation for small traders and Incentives to companies for job creation and re-skilling workforce.

Iyer spoke to ET Wealth online about the key expectations from the Union Budget 2019-20 in the area of personal finance.

Following are edited excerpts from the interview:

1. Restriction on Rs 1 lakh exemption for long-term capital gains (LTCG) on equity
The Finance Act 2018 introduced income-tax on LTCG on sale of listed equity shares, units of equity oriented mutual funds and units of a business trust at 10 percent on LTCG exceeding Rs 1 lakh per financial year. "We expect that the exemption limit of Rs 1 lakh may be available only to people with income up to Rs 10 lakh," said Iyer.

2. Interest on housing loan
Currently, the interest deduction on the self-occupied property is limited to Rs 2 lakh. To boost real-estate sector and the Government's objective of 'Housing for All' by 2020, it is expected that the limit may be increased to Rs 2.5 lakh. The limit was last increased from Rs 1.5 lakh to Rs 2 lakh in Financial Year 2014-15. Explaining further Iyer said, "We are expecting the interest rate on housing loan to be extended up to Rs 3 lakh."

3. Deduction under Section 80C
To boost investment, it is expected that the deduction limit may be increased from Rs 1.5 lakh to Rs 2 lakh. The limit was last increased from Rs 1 lakh to Rs 1.5 lakh in Financial Year 2014-15.

4. Interest from a savings bank account
Currently, the deduction is available for savings bank interest income up to Rs 10,000 to the general tax payer. Interest income from fixed deposits is not eligible for deduction. However, for senior citizens (aged 60 years and above), the limit is Rs 50,000 and includes interest income from fixed deposits.

Iyer said, "We are expecting that this deduction limit may get increased to Rs 25,000 and also include interest income from fixed deposits." Further, it is also expected that interest income from deposits with Non-Banking Financial Corporations (NBFCs) may also be made eligible for deduction as a personal tax measure to address liquidity issues faced by NBFCs.

5. Presumptive taxation for small traders
Currently, under presumptive taxation, 8 percent of gross receipts or 6 percent of gross receipts if received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank ('banking channels') is taxable as business income.

Iyer said, "As an incentive to increase the tax base of small traders and ease their compliance, we expect that the rate may be reduced from 8 percent to 6 percent of gross receipts and from 6 percent to 5 percent of gross receipts through banking channels."

This move would also incentivise use of digital means for financial transactions over cash transactions, she added.

6. Incentives to companies for job creation and re-skilling workforce
Today, the economy can progress by creating jobs and expanding the growth of middle and poor class as their consumption becomes the main growth driver. The budget may also bring measures to incentivise companies to create more jobs and reskill workforce, she said.

Iyer said, "We expect the government to increase consumption, increase growth and, to create jobs for the middle and poor class. As a consumption boosting measure, we expect the Goods and Services Tax (GST) rates for some products to be reduced. GST on products which fall under 28 percent bracket may be reduced to 18 percent and that on some products which currently fall under 18 percent bracket to be reduced to 12 percent and so on."