Instead of changing tax slabs, FM may hike deduction limits: KPMG

Girish Vanvari, Partner, Head of Tax, KPMG India talks to Sanjeev Sharma

Though there has been high expectation on the revision on the personal income tax slab rates, the FM may choose not to alter them. Instead, he may look at introducing measures such as enhancing the deduction limits, says Girish Vanvari, Partner and Head of Tax, KPMG in India.

Q: What are the expectations on direct taxes in the forthcoming Union Budget?

A: The Budget could see the government announce incentives to promote its flagship programmes such as ‘Make in India’, ‘Digital India’ and ‘Startup India’. The measures could include providing tax rebates for digital transactions, extending the tax holiday period for startups beyond three years to name a few.

Q: Post demonetisation, are there any incentives on the anvil for personal income tax?

A: The FM may enhance the deduction limits in 80C to say Rs 3,00,000, introduce deduction for investment in sector-specific bonds such as infrastructure and may also consider an increased deduction on interest income from Rs 10,000 to Rs 20,000.

Q: What are the contours of possible reduction in corporate tax?

A: The reduction in the tax rate is expected to be gradual over the next two to three years and one can expect the FM to announce a marginal rate cut in the upcoming Budget along with a roadmap indicating the transition to the lower tax rate of 25%.

Q: Which are the areas the Budget should focus on to simplify the personal income tax regulations?

A: On the personal tax front, the Budget should focus on realigning Small Savings Schemes and provide a direction to bring taxation of various products like NPS, Employee Provident Fund Scheme (EPFS), private pension, etc. on a par. The LTA exemption may also be extended to include overseas travel considering the rising trend and aspirations of the people.

Q: Post Demonetisation, how can the black money in the bank accounts be tapped for revenue generation?

A: The government is expected to scrutinise suspicious deposits on account of the demonetisation move and initiate tax recovery proceedings against unexplained deposits. Higher money in the banks would mean higher lending hopefully at lower interest rates which should in turn revive the economic cycle and usher in higher tax revenue for the government.