Income Tax Expectations From Budget 2014

Finance Minister Arun Jaitley’s first Budget will be watched closely by millions of tax payers, who expect the government to cut taxes and raise exemptions. Income tax rates in India are among the highest in the world, so hopes of tax cuts are justified. However, Mr Jaitley will be constrained by the precarious state of government finance. The government does not have many levers to raise revenues to compensate for any shortfall in tax collections.
Here are 10 tax expectations from the Budget:

Mr Jaitley is expected to double exemption limit on long-term financial savings, currently capped at Rs.

1 lakh. Savings instruments such as housing loan repayment (principal), five-year and above tenure fixed deposits, provident funds (PFs) and life insurance policy premiums are some investment vehicles that qualify for tax exemption under Section 80C of the Income Tax Act. Currently, there is no tax for income up to Rs.

2 lakh. According to PricewaterhouseCoopers (PwC), exemption limit on income tax should be hiked to Rs.

3 lakh. (Read: Hike Income Tax Exemption Limit to Rs. 3 Lakh: PwC) Interest up to Rs. 1.50 lakh on home loan for self-occupied property is tax free. Analysts say the current ceiling should go up to Rs. 4 lakh or Rs.

5. ndividuals with taxable income above Rs. 1 crore have to pay a surcharge of 10 per cent. Mr Jaitley may increase the tax rate on these high earners or may impose even higher tax on people earning more than Rs. 10 crore annually.

6. Mr Jaitley is expected to slash duty on gold, which currently stands at 10 per cent. Gold duty was hiked to dis-incentivize imports and bring down current account deficit. Both objectives have been met. (Government May Cut Gold Import Duty in Budget: Trade Body)

7.Excise duty on cigarettes may go up by 15-20 per cent, analysts say. This will make cigarettes and other tobacco products costlier. (Liquor, Cigarettes May Be Taxed More in Budget: Avinnash Gorakssakar)

8.Lower corporate tax: The effective tax rate for domestic companies is nearly at 34 per cent.

9.Corporates also want a review of the applicability of minimum alternate tax (MAT) and dividend distribution tax to units at Special Economic Zone during the tax-holiday period. Minimum alternate tax (MAT) of 18.5 per cent and dividend distribution tax (DDT) of 15 per cent were imposed in 2011-12.

10.Every sector – IT, auto, pharma, cement, etc.- have their own list of tax cut expectations.