Budget 2022: Ordinary Taxpayers Want Changes in Tax Rates, Higher Tax Deduction on Home Loans

As an individual taxpayer, I have listed my expectations for the streamlining of some income tax provisions from Finance Minister Nirmala Sitharaman.

Relief for home buyers

Currently, a taxpayer can claim a global deduction of up to Rs. 2 lakhs from his income for interest paid by him for up to two independent houses. Any interest above Rs 2 is not eligible for tax benefit. However, if the property is rented, he can claim full interest on rental income from all his properties without any monetary restrictions, provided that losses under ownership of the house up to Rs 2 lakh cannot be compensated than by his other income.

Any unabsorbed loss can be carried forward for set-off with ownership of the home over the next eight years. In my opinion, the law should be the other way around. The person using the self-occupied home should be allowed to claim full interest but should discourage tax arbitrage on interest paid on money borrowed for rented property and should be limited to a fixed amount.

If full interest on independent property cannot be allowed, the limit of interest deduction on each independent property should be raised to a minimum of Rs 5 lakh taking into consideration the amount of interest that one has to pay on a home loan to buy a property, especially in big cities.

With the inclusion of many items eligible for deduction under Section 80C, it is crowded and in majority of cases the 1.50 lakhs limit is insufficient and many eligible items are overwhelmed. As real estate prices have risen dramatically in recent years, the government should provide a deduction for the repayment of Section 80 C home loans and introduce a separate deduction to provide relief to homebuyers as well as the real estate industry.

Tax Rate Changes

Since there are not many takers of the new tax system, the government should rationalize the current tax brackets for the old tax system. Currently, income between Rs 2.50 lakh and Rs 5 lakh is taxed at 5%, but the slab rate increases sharply to 20% for income between Rs 5 lakh and Rs 10 lakh under the old regime. I ask the Minister of Finance to reduce this current tax bracket from 20% to 10% to make it progressive and smooth.

Additionally, the finance minister is expected to transfer the 20% tax bracket to taxpayers whose income is between Rs 10 lakh and Rs 25 lakh. Income between Rs 25 lakh and Rs 1 crore may be taxed at 25%. Those with income above Rs 1 crore may be taxed at 30% as they have the ability to pay higher tax. I also suggest to the FM to remove the surtax levied on high-income taxpayers.

According to the Laffer curve, higher slab rates result in lower overall tax collection. The lower rates suggested above will help the government generate more revenue in the long run through better compliance, because people are willing to pay taxes as long as it doesn’t affect their standard of living. This is evident in the increase in tax collection after tax rates were reduced from 93.5% in the 1970s to 30% in 1997.

Marginal relief for individual taxpayers with income slightly above Rs 5 lakh

Currently, a resident individual taxpayer is entitled to claim a refund of up to Rs. 12,500/- against his tax liability under Section 87A as long as his total income does not exceed five lakh rupees in the year. However, once the income crosses the magic threshold of 5 lakhs, the tax liability suddenly increases by Rs. 12,500/- even if the additional income above Rs. 5 lakhs is only a few hundred.

All taxpayers with income above 50 lakhs are subject to surcharge but are entitled to receive marginal relief as provided in the respective Finance Act, although this is not part of the Finance Act. ‘income tax. In accordance with the marginal relief provisions, the additional tax payable shall not exceed the additional income above Rs. 50 lakhs, the surtax limit threshold, due to the levying of a surtax.

Section 87A contains no provision for marginal relief in case the income exceeds Rs. 5 lakhs for only a few hundred rupees. This marginal relief provision, if introduced, will control the tendency of taxpayers, especially the self-employed, to manipulate their level of income in case it is found to be slightly above the threshold limit of 5 lakhs to avoid the payment of taxes in excess of the additional amount. Income.

(The author is a tax and investment expert and can be reached at [email protected] and @jainbalwant on Twitter.)

Balwant Jain is a guest contributor. The opinions expressed are personal.