In its pre-budget expectations, Deloitte India has called for a reduction in the highest tax rate of 30% to 25%, and also an increase in the threshold limit for the highest tax rate from the current ₹10 lakh to ₹20 lakh. Deloitte believes that the move is needed to bring parity in the personal income tax with the corporate tax rate that was reduced in 2019. Deloitte has also called for additional deductions for expenses incurred by the employees during work from home.
In a note on budget expectations, Deloitte India says, “An individual is required to pay taxes based on the slab rates. The highest slab rate (after including surcharge and cess) for income exceeding ₹5 crore in India is currently at 42.744%.”
“There has been a reduction in corporate tax rates over the past few years. Hence, to align individual tax rates with the corporate tax rate, it is advisable to reduce the highest tax rate of 30% to 25% and also increase the threshold limit for the highest tax rate from ₹10 lakh to ₹20 lakh. Therefore, the proposed highest slab rate (including surcharge and cess) can be reduced to 35.62% from 42.744%,” it adds.
The agency has also called for additional deductions on the “work from home” expenses for employees. “Considering the current situation, employees are working from home across businesses. Employees are likely to incur additional 'work from home-related expenditure', such as internet charges, rent, electricity, furniture, etc., and therefore, employers would need to provide allowances to meet these expenditures,” it adds while recommending an additional ₹50,000 “work from home” allowance be given to employees who are working from home.
The firm has also brought to the fore the instances of double taxation in the provident fund and other contributions and has sought a correction to the same through an amendment in the Income Tax Act. As per the existing provisions, employer contribution of more than ₹7,50,000 to PF, superannuation fund or National Pension Scheme is taxable at the hand of the employee in that year.
“The same PF balance, when withdrawn, would be subject to tax withholding, if the conditions for exemption (e.g., five years of continuous service) are not complied with and there is no specific exemption provided for excluding the income already taxed mentioned above. Hence, there could be double taxation, at the withdrawal stage to the extent the contribution/accretion has already been taxed,” says Deloitte.
“It is recommended that there should be a specific provision in the Act, providing an exemption for contributions/accretions that are already taxed at the time of PF withdrawal,” Deloitte adds.
A similar proposal has been made by the industry body Assocham. It has called for a reduction in tax rates for individual taxpayers in the upcoming budget. The industry body has also urged the ministry of finance to ensure parity in tax liabilities between small firms, limited liability partnerships (LLPs) and the corporate sector.