New Delhi: The aam aadmi is expecting a big relief in personal income tax rates and an increase in other exemptions in the forthcoming Union Budget, since indications are that the government wants to ease the pain caused by demonetisation. The budget is scheduled for 1 February this year, almost a month before the usual end-February date - and with the traditional halwa ceremony being conducted yesterday, the fate of the budget announcements has already been sealed.
So what does the salaried class want most from the budget this year? On 10 January, the finance ministry conducted a twitter poll, asking people questions such as which scheme needs more focus in the forthcoming budget. Of the nearly 7,500 respondents to this question, every second respondent (51 percent) said housing for all scheme should be the government’s top priority. Another fourth of the respondents (24 percent) said Startup India should get attention with the remaining 25 percent prioritising Mudra Yojana and Standup India.
Anup Routh @17_routh said “raise the IT slab up to 5 Lac. Remove any sort of service tax on digital payment upto any amount”. Umang Shah(उमंग शाह) @CAURSHAH said “housing for all is supposed to be focused more than any other scheme and also income tax slabs shall also go high to 5 lakh.” Milind Shah @milindshah2006 said “enough incentive given to India Inc start up etc. Pl work for fixed salary class poor and farmer. Forget others” whereas Vibhuti Singh @singhvibhuti said “we have lots of hope to change in Income Tax Slab”.
Will there be any major change in income tax slabs then, since most people have their hopes pinned on this issue? Amarpal Chadha, Partner & India Leader - Mobility at EY, said the finance ministry has received proposals from tax experts to raise the basic exemption limit on personal income tax to Rs 3.5-4 lakh. “This will mean more money in the hands of people”. As of now, the basic exemption limit is Rs 2.5 lakh per annum – this is the earning on which no income tax is levied. A higher basic exemption limit should mean lower tax payment. Chadha also said that there was a need to “tweak income tax slabs, in line with the recommendations of the Direct Tax Code”.
Remember, only about 1 percent Indians pay any income tax at all. Data for individuals were last published only for 2012-13 assessment year, showing taxes for income in financial year ended 31 March, 2012. The tax outgo was less than Rs. 1.5 lakh for a vast majority of nearly 89 percent taxpayers (over 1.11 crore). Their average tax payable was just about Rs 21,000 or less than Rs 1,000 a month, while the collective amount stood at over Rs 23,000 crore.
If the government raises the basic exemption limit and also eases the slabs at which tax is collected, it will need to announce measures to widen the tax base significantly. Tax experts feel the government may hike the basic exemption limit in the budget but any tweaking in tax slabs would at best be marginal.
Instead, there is hope that exemptions which currently exist for the salaried class could be enhanced. One expert said these should be linked to inflation, since things like allowances for children’s education and medical reimbursements were set many years back. As of now, a salaried person gets a puny Rs 100 a month as deduction for kids’ education when it costs multiple times more. Medical reimbursement is just Rs 15,000 for 12 months – another archaic limit which needs to be enhanced substantially. Some other suggestions by industry chambers and tax experts relate to re-introduction of the standard deductions.
This piece says there are various expenses that the employees incur during the course of employment which one cannot claim as deduction. As a result, salaried employees shell out more taxes in comparison to their income. Hence, standard deduction could be reintroduced thereby resulting in more money inflow to the taxpayer. Approximately, 20 percent of the gross salary subject to a maximum limit of, say, Rs 1,00,000 could be considered for the purpose of standard deduction.
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Published Date: Jan 20, 2017 16:38 PM | Updated Date: Jan 20, 2017 17:08 PM