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Tax Planning: Why some tax concessions make economic sense

 

THE Budget is around the corner and like every year, there is lot of expectations from all sections of the society to see that their demands are met in the Budget. It is pertinent to note that over the years, tax concessions — deductions/exemptions available to the individuals have been cut/reduced to bare minimum. In this context, there are a few tax concessions which have a strong case to be continued and even be enhanced in scope and quantum.

Housing Deductions

One of the popular deductions claimed by the individuals is in respect of the interest deduction on housing loan up to Rs 1.5 lakh for a self occupied property.
Similarly, a deduction of up to Rs 1 lakh could be claimed U/S 80C of the Income-Tax Act, 1961 (the Act), for repayment of the principal amount of the housing loan.


   The realty/housing sector provides employment to millions of people, including unskilled workers across the country. Further, a growth in the housing sector has a direct bearing on the cement and steel industry, which are the key industries for the overall development of the economy. Therefore, there is a strong case to continue and rather enhance the housing loan deductions to ensure that a demand-led pull factor from individuals provides the necessary stimulus to these key sectors. Therefore, it may be appropriate to increase the deduction for interest on housing loan interest to Rs 3 lakh and in respect of repayment of the principal amount to Rs 2 lakh.

Education Deduction

Currently, the deduction available in respect of expense incurred on education of children is clubbed with other investment-related deductions U/S 80C of the Act. Further, any specific education allowance if paid by the employer is exempt up to Rs 100 per month per child for a maximum of two children.


   Education is one of the key requirements of our country to grow and prosper. The very reason the government had levied education cess was primarily to collate and channelise funds for the education sector. It is imperative that education be encouraged by providing meaningful concessions/relief at the grass root level. In this context, a separate deduction for expenses incurred on education up to Rs 2,500 per month per child for a maximum of two children would make economic sense. In order to bring in economic parity, this deduction may be restricted to individuals having annual income of less than Rs 10 lakh.


   Further, instead of government subsidising schools and education institutions as at present, it is high time that the government empowers the individuals/parents to decide in which school/education institution their children should study. Therefore, education deduction, coupled with education vouchers, is probably the need of the hour.

Leave Travel Allowance (LTA)

Currently, a deduction is available for travel to any place in India for a maximum of two journeys in a block of four calendar years by economy class economy air fare/first class rail fare, etc.


   Travel and tourism is an important industry which has the potential to grow if necessary support is provided to this sector. Therefore, a simple measure of enlarging the scope of LTA provisions namely, allowing for deduction every year for journey to any place in India and not restricting the deduction to travel expenses alone but also to cover the hotel/guest house stay expenses could help provide the necessary stimulus to this sector.

A small step taken in the form of tax concessions at the micro level could help trigger the demand-led growth in the above sectors and could yield desired results at the macro level. Therefore, a few tax concessions, besides providing relief to the common tax payer, do make good economic sense!

 


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