Finance Minister Nirmala Sitharaman is tasked with the primary objective to revive growth and consumption as she presents the Union Budget 2021. However, she has to walk the tightrope and strike a balance between fiscal prudence and growth.
The task is cut out to spur the economy by reviving demand and enhancing consumer spending.
Raising the tax exemption limit for the salaried class is one of the options to boost private consumption and investment. Sources in the Income Tax Department told BusinessToday.In that FM Sitharaman may increase Section 80C limit to Rs 2 lakh from Rs 1.5 lakh in her budget announcement.
The section was last enhanced by former Finance Minister Arun Jaitley in 2014 when he increased it from Rs 1 lakh to Rs 1.5 lakh. Increasing the Section 80C limit is part of several wishlists in this year's budget exercise.
The Centre may also leave personal income tax slabs untouched. The source further said that the discussion has already taken place on exemption limits, which have remained the same for over four to five years.
"Changes to the exemption limits in personal income tax have been discussed. The tax exemption limit of Rs 1.5 lakh on savings is likely to be reworked. It may go up to Rs 2 lakh," the source said, adding that given the skewed finances of the government in the wake of the coronavirus pandemic, there is no elbow room to provide any relief to the common taxpayer.
The Centre may also rework other exemptions to personal income tax in order to spur household savings as well as the real estate sector.
In addition, the government also needs to boost job creation for which experts suggest it needs to improve revenue collection, along with rationalisation of central schemes as well centrally sponsored schemes, as they will give way for higher disbursement towards infrastructure and asset creation in FY22.
Meanwhile, the industry is optimistic that the Budget 2021 will revive the economy. According to a Deloitte survey, about 50 per cent of industry respondents feel that the upcoming budget will revive their business, while the vast majority are optimistic about economic recovery and demand growth.
While some respondents also feel raising tax exemption limit for individuals will boost private consumption and investment, about 50 per cent highlighted demand revival as one of the major working areas.
"Movement restrictions and financial and health anxiety amongst consumers have affected consumption. High precautionary savings may keep demand below pre-COVID-19 levels for a while. Some respondents also feel that raising the tax exemption limit for individuals will boost private consumption and investment," it said.