With less than three weeks to go for Finance Minister Arun Jaitley's Budget 2019 speech, speculation is rife on what he may end up offering Indians just months ahead of the general elections. The wish list of the common man as well as industry chambers includes income tax sops, and the buzz is that the government is likely to give in.
Jaitley may double the income tax exemption threshold for the salaried from Rs 2.5 lakh currently to Rs 5 lakh and reinstate tax-free status for medical expenses and transport allowance, IANS reported.
Last November, the finance ministry had set up a six-member task force to rewrite the over 50-year-old Income Tax laws in line with the norms prevalent in other countries, incorporating international best practices while keeping in mind the economic needs of the country. The new Direct Tax Code will reportedly try to bring more assessees into the tax net, make the system more equitable for different classes of taxpayers, make businesses more competitive by lowering the corporate tax rate, and phase out the remaining tax exemptions that lead to litigation.
While tax exemptions are a key demand, the industry chambers have recommended tinkering with tax slabs, too. The CII, in its pre-Budget recommendations, suggested lowering the highest personal income tax slab to 25% from 30% at present. On the other hand, FICCI's wishlist includes a revision in the tax slabs for the individual taxpayers with the top 30% rate applicable only beyond Rs 20 lakh annual income.
While previous governments have avoided introducing major changes in an Interim Budget, the regime at the Centre has often used this opportunity to woo voters and outline its economic policy vision for the next five years should India vote to keep it in power. For instance, in the previous interim budget in 2014, former finance minister P. Chidambaram announced 'One Rank One Pension' (OROP) with an eye on the electorally-significant community of veterans.
In the face of reality checks in the Rajasthan, Madhya Pradesh and Chhattisgarh polls, the ruling BJP party, too, is widely expected to take the populist route in the upcoming budget. In addition to the income tax benefits, the finance ministry is mulling a couple of other measures like providing tax benefits to pensioners and lowering of interest rates on housing loans.
If announced, all these measures could directly benefit the middle class, thereby avoiding a possible backlash from this demographic in the upcoming polls. The Modi government is apprehensive of this possibility since it has fallen short of its 2014 electoral promises on jobs and other benefit while demonetisation also took a toll on the middle-class.
But the government's plans may not go smoothly. The Union Budget will precede the release of the Direct Tax Code Report, scheduled on February 28, so tinkering with the tax rates ahead of the report will make it contentious.
Here's a look at the current income tax slabs:
Note that the income tax exemption limit for senior citizens aged 60 years but less than 80 years is Rs 3 lakh, while the same for those aged over 80 years is Rs 5 lakh. A surcharge of 10% of income tax is applicable where total income exceeds Rs 50 lakh and 15% for total income exceeding Rs 1 crore.
With PTI inputs