In 2019, Finance Minister Nirmala Sitharaman reduced the corporate tax rate and raised hopes of a tax cut for individual taxpayers.

This year too, there are speculations that she might increase customers’ demand and reduce existing tax rates. Needless to say, common men do have some expectations from the Budget 2020. So, what do they expect?

Here’s a look

Revision in tax slabs

Currently, there is no tax for individuals with income up to Rs 5 lakh per annum (after considering rebate). However, the basic exemption limit has not been to Rs. 5 lakh. Hence, individuals earning more than Rs 5 lakh per annum, are required to pay minimum five per cent on income between Rs 2.5 lakh to Rs 5 lakh. Further, an income tax of 20 per cent is payable on income from Rs 5 lakh to Rs 10 lakh and 30 per cent above Rs. 10 lakh. In addition to the above education cess is levied.

Keeping in view inflation rates, the Finance Minister (FM) can consider increasing the tax slabs and also bring down the tax rate by five per cent making the maximum slab rate at 25 per cent. This would leave some more money at the disposal of the common man.

Increase deduction limit for health insurance

Healthcare costs continue to rise and hence people need a higher health insurance cover. The common man is expecting Budget 2020 to raise the deduction limit for medical insurance premium under Section 80D from Rs 25,000 to at least Rs 50,000 for self and family, and for senior citizens dependent parents from Rs 50,000 to at least Rs 75,000.

Reintroduction of Tax-Saving Infrastructure Bonds

The government could look at reintroducing the deduction for investment in infrastructure bonds up to Rs 50,000. The deduction for investment on such bonds was earlier available under section 80CCF, to the extent of Rs. 20,000 during Financial Year (FY) 2010-11 and 2011-12. However, it was subsequently withdrawn. In addition to a tax break, the reintroduction of the deduction would push people to invest in long-term finance bonds and provide an impetus to the infrastructure sector.

Increase in deductions under section 80C:

The current deduction limit of Rs 1.5 lakh under section 80C for certain investments or payment is available to individuals. Repayment of housing loan is also included with many other investments such as provident fund or school fees. Housing cost is substantial in current times and in most cases much beyond the permissible deduction limits. This does not leave any room for allowing deductions for other investments. This limit was last enhanced in FY 2014-15 from Rs 1 lakh and hence its time that the FM enhances this deduction to Rs 250,000.

Additional tax deduction for interest repayment extended:

Section 80EEA, introduced in FY 2019-20 provides additional deduction of Rs 1.5 lakh for interest payment on purchasing a house with the stamp duty value not exceeding Rs. 45 lakh. Individuals not owning a house as on the date loan sanction can avail of this benefit. This deduction is allowed over and above the Rs. 2 lakh deduction for home loan interest under Section 24. Considering real estate prices in metro cities for extending real benefit, the restriction on the value of the house should be removed and higher deduction should be extended to all taxpayers irrespective of the cost of the house. This will give a boost to the real estate sector.

Extend tax relief on interest income:

Fixed deposits and small savings schemes are the indispensable investments of a common man in India. Considering that retail savings have been adversely impacted by falling interest rates and defaults by debt issuers, additional tax break on interest income is expected.

The 2018 Budget had given senior citizens an exemption of up to Rs. 50,000 for interest earned on bank deposits, post office schemes and bonds. This should be extended to all taxpayers.

Personal tax reforms to reduce tax liability will definitely increase the disposable income in hands of individual but only time will tell whether taxpayers will increase their spending or savings. One will have to wait and watch till February 1, 2020, to see how the FM balances Budget expectations as well as the agenda to increase demand in this phase of slowdown.

Aarti Raote is Partner with Deloitte India.

Reena Poddar is Manager with Deloitte Haskins and Sells LLP.