Budget 2018-19: Arun Jaitley may hike income tax exemption limit from Rs 2.5L to Rs 3L or more
Mail Today Bureau January 10, 2018
The middle class is likely to get some relief in the 2018-19 budget which is expected to reflect a please-all strategy as it is the last regular budget of the BJP-led government ahead of the general elections in 2019. According to senior officials, the finance ministry is considering a proposal to hike the personal income tax exemption limit from Rs 2.5 lakh per annum to Rs 3 lakh or more and also introduce some changes in the tax slabs to lighten the taxpayers' burden.
The government is working on various combinations and permutations to arrive at the right mix which ensures that the tax burden is not unreasonable and at the same time enough resources are mobilized for infrastructure development, a senior official said. The government is aware of the fact that middle-income families are facing the brunt of rising inflation and easing the tax burden would provide some relief. A reduction in the tax burden would also place more disposable income in the hands of consumers which would increase the demand for goods and services and spur economic growth, he explained.
However, the flip side is that tax base is very narrow and the government is struggling to bring down the fiscal deficit which poses a major constraint in providing tax concessions beyond a point, the official lamented. Finance Minister Arun Jaitley will have to do a fine balancing act. He had left the tax slabs unchanged in the 2017-18 budget but provided marginal relief to small taxpayers by reducing the rate from 10 per cent to 5 per cent for individuals with annual incomes between Rs 2.5-5 lakh.
Clearly, the budget will have to have a pro-farmer tilt which means more resources have to be mobilized for agriculture and rural development, the official added. The finance ministry is also considering a suggestion to provide tax exemption on fixed deposits in banks in the same manner as mutual funds in order to encourage savings by households so that more funds come into banks. These can then be used to extend loans.
The holding period for short-term capital gains (STCG) tax on listed securities may also be extended from one year to three years, bringing equities on a par with some other asset classes in tax treatment. This is among a number of measures for the capital markets that may be announced in the Budget for 2018-19. The STCG tax on stocks and mutual funds is 15 per cent at present. Listed securities held above a year do not attract any tax.
Industry chamber CII has in its pre-Budget memorandum to the finance ministry sought a reduction in the peak tax slab from 30 per cent to 25 per cent. However, it is unlikely that the ministry will concede ground due to pressure on the fiscal deficit. The subdued indirect tax collection following the roll out of the 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 the borrowing target by additional Rs 50,000 crore for the current fiscal to meet the shortfall. However, the government expects GST collections to pick up in the next fiscal as the teething problems of the new tax regime are being resolved.