Middle class can hope for a big relief in the Union Budget 2018, which will also be the last regular Budget of the NDA government, as the finance ministry is contemplating to hike personal tax exemption limit and tweak the tax slabs.
The proposals before the ministry is to hike the tax exemption limit from the existing Rs 2.5 lakh per annum to at least Rs 3 lakh if not 5 lakh, sources told PTI.
Besides, the tinkering of income tax slab is also being actively considered by the ministry to give substantial relief to middle-income group, especially the salaried class, to help them tide over the impact of retail inflation, which has started inching up.
In the last Budget, Finance Minister Arun Jaitley left the slabs unchanged but gave marginal relief to small taxpayer by reducing the rate from 10% to 5% for individuals having annual income between Rs 2.5-5 lakh. In the next Budget to be unveiled on February 1, the government could lower tax rate by 10% on income between 5-10 lakh, levy 20% rate for income between Rs 10-20 lakh and 30% for income beyond Rs 20 lakh. At present, there is no tax slab for income between 10-20 lakh.
“Considering the steep rise in cost of living due to inflation, it is suggested that basic limit for exemption and other income slabs should be enhanced to give benefit to low-income group. The income trigger for peak rate in other countries is significantly higher,” industry chamber CII said in its pre-Budget memorandum to the finance ministry.
Although the industry chambers want the government to reduce peak tax slab to 25%, it is unlikely that the ministry will agree to that due to pressure on fiscal deficit. The subdued indirect tax collection following rollout of Goods and Services Tax from July 1 last year has put pressure on the fiscal deficit, which has been pegged at 3.2% of the GDP for 2017-18.
The government recently raised borrowing target by additional Rs 50,000 crore for the current fiscal to meet the shortfall.
According to industry body FICCI, there is a likelihood that demonetisation effects may linger on for some more months and hence there is a need to further boost demand and therefore, the government should consider revision of income tax slabs, by raising the income level on which peak tax rate would trigger. “This would improve purchasing power and create additional demand. For individual taxpayers, 30% tax rate should be applicable only if the income is above Rs 20 lakh. Additionally, interest rates should be lowered to enable affordable finance for conducting business operation and expansion,” it said.
Among other things, chambers have suggested re-introduction of the standard deduction for salaried employees to at least Rs 1 lakh to ease the tax burden of them and keeping in mind the rate of inflation and purchasing power of the salaried individual, which is dependent on salary available for disbursement. Standard deduction, which was available to the salaried individuals on their taxable income, was abolished with effect from the assessment year 2006-07.
(With PTI inputs)