Budget 2018: Govt may hike tax exemption limit from Rs 2.5 lakh to Rs 3 lakh
The government is likely to provide some relief to individual income tax payers in the forthcoming Budget by raising the exemption limit to Rs. 3 lakh, according to sources.
"The proposals before the ministry are 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", they said. Besides, the tinkering of 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 the small taxpayer by reducing the rate from 10 percent to 5 percent for individuals having an 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 per cent on income between 5-10 lakh, levy 20 per cent rate for income between Rs. 10-20 lakh and 30 per cent of 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 per cent, it is unlikely that the ministry will agree to that due to pressure on fiscal deficit. The subdued indirect tax collection the 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 per cent 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 per cent tax rate should be applied 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.