Union Budget 2019: In order to make a mark with her maiden budget, Finance Minister Nirmala Sitharaman had taken the unprecedented step of crowdsourcing ideas from the public. And right on top of the wishlist of the salaried class is lower taxes. Experts and industry bodies concur, since increasing personal disposable income will boost overall consumption in the economy at a time when the growth rate is slowing down.
The past budgets under the Modi 1.0 government had ushered in several changes in our salary structures and annual tax outgo. For instance, in former finance minister Arun Jaitley's first budget in 2014, he had not only raised the personal income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh but also increased the investment limit under Section 80C - after a decade - by Rs 50,000.
The next two budgets mostly tinkered with deduction limits while increasing the tax outgo of the super-rich. Then Budget 2017 halved the income tax rate for Rs 2.5-5 lakh slab to 5%, the next one saw the reintroduction of standard deduction and the Interim Budget 2019 offered a full tax rebate to individual taxpayers having taxable annual income up to Rs 5 lakh.
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So can Sitharaman do one better in her first Budget speech? The easiest way to ensure that is to give in to the long-standing demand for raising the income tax exemption limit. Depending on who you ask, the ideal threshold is anywhere from Rs 3 lakh to Rs 7.5 lakh. For instance, Assocham and the CII have both recommended zero tax till Rs 5 lakh considering inflationary impact over the years. If accepted, this move will reportedly benefit around 4.50 crore taxpayers.
However, the All India Bank Employees' Association (AIBEA) has a more radical idea. In a letter to Sitharaman, AIBEA General Secretary Ch Venkatachalam reportedly suggested raising the tax exemption ceiling to Rs 7.5 lakh with the exclusion of fringe benefits such as housing, medical and educational facilities. However, keeping an eye on fiscal consolidation, perhaps there isn't room to do better than a Rs 3 lakh threshold. But even then a significant number of Indians stand to benefit.
The wishlists of the common man and industry bodies have another thing in common: A demand for an increase in the maximum deduction limit under Section 80C from Rs 1.5 lakh to at least Rs 2 lakh. The current 80C limit hardly provides any relief in the face of rising cost of living and inflation. Moreover, for most people, it quickly gets exhausted through expenses such as tuition fees, provident fund contributions and payments made against home loan principal. This leaves little room to save through permissible investments such as five-year notified tax-saving bank deposits, Public Provident Fund (PPF), National Savings Certificate (NSC), equity-linked savings schemes (ELSS), subscription to notified securities and deposits schemes, and more.
Assuming Sitharaman grants this wish, those falling in the 20 per cent and 30 per cent tax brackets stand to save around Rs 10,000 and Rs 15,000, respectively.
The Federation of Indian Chambers of Commerce and Industry (FICCI) has gone a step further to recommend tinkering with tax rates, too. Currently, individuals earning between Rs 2.5 lakh and Rs 5 lakh are required to pay 5 per cent tax along with cess, while those in the Rs 5-10 lakh bracket have to pay 20 per cent and the tax rate for incomes over Rs 10 lakh is 30 per cent. That's a very steep jump between the first two tax brackets so speculation is rife that Sitharaman may consider some rationalisation.
In its pre-Budget memorandum, FICCI recommended 10% tax rate for the Rs 5-10 lakh bracket and 20 per cent for Rs 10-20 lakh. "The highest tax rate of 30 per cent should be applicable only for incomes above Rs 20 lakhs," the industry chamber said. It added that the levy of surcharge on individuals having total income above Rs 50 lakh and Rs 1 crore - at 10 per cent and 15 per cent respectively - should be completely abolished. The raison d'etre is that increased surcharge on certain category of individuals "tends to discourage entrepreneurship and incentivises people to relocate to other locations".
However, given that the government needs higher tax collections to increase investments towards ailing sectors, such rationalisation in tax rates may not be possible at the moment.
Assocham also pointed out the need to bring in the necessary parity among salaried and non-salaried tax payers. "About 20 per cent of the gross salary subject to a maximum limit of, say, Rs 1 lakh could be considered for the purpose of standard deduction," it said in its pred-Budget recommendations. According to the body, there is a disparity between the salaried employees and the self-employed, resulting in higher tax being paid by the former.
If Sitharaman delivers even one of the above wishlist items, your salary package will change for the better.
With PTI inputs