Budget 2017: Expectations bound to upcoming tax policy

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Union Finance Minister Arun Jaitley is set to present the Union Budget 2017 on February 1. Almost everyone is betting on an increase in tax slabs this year. Let us examine some of the reasons why there maybe some reason for the government to hike the income tax brackets or income tax slabs this year.

For those who came in late: At present, you do not pay income tax, if you have an annual income of less than Rs 2.5 lakh On the other hand, you pay a tax of 10 per cent, if you have income between Rs 2.5 lakh to Rs 5 lakhs and 20 per cent for income between Rs 5 lakh and Rs 10 lakh and 30 per cent over Rs 10 lakh

Expectations around tax policy

Numbing the demonetisation pain

The one other reason apart from having the space to raise the basic exemption limit for income tax is to soothe aching nerves after demonetisation. One could be that the basic exemption limit could be raised or more tax breaks, as an example Section 80C benefits. Who knows, if the FM is generous, both might be a recommendation in the Union Budget 2017.

Room to reduces taxes

The reduction of taxes largely depends on the government's ability to manage its fiscal deficit or the budget deficit. The fiscal deficit is expected to fall further as tax collections have been robust. In fact, in Union Budget 2017, the finance minister is expected to reduce the targeted fiscal deficit even lower. This means he clearly has the room to offer tax benefits and raise the tax slabs. There are many predictions, but in all probability, he might raise the basic exemption limit to Rs 3 or Rs 4 lakh, instead of the present Rs 2.5 lakh.

Assembly elections on the mind

There are assembly elections in key states, including Uttar Pradesh, so the government may dole out goodies, though they cannot offer direct benefits to states going to the polls. While a direct dole would be against the poll conduct, the state could still decrease the tax slab to mollify the voters.

Sec 80C benefits

It is likely that exemption limit on 80C maybe raised or the exemption limits on things like conveyance maybe enhanced. It is also highly possible that both could also be implemented. All said and done, expect some sops for individuals in the Budget.

Why only basic tax limit?

The one reason, for only raising the basic limit for which tax is payable, is because of the thought that those who earn more, should pay more. Keeping that in mind, we may only see the finance minister raise the base rate and it would not be a surprise if he does that.

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