Finance Minister Nirmala Sitharaman will present Union Budget in Parliament on February 1. From economists and analysts to the common man, all eyes will be on any minute changes in the income tax structure. Every year, speculations on major income tax changes in Union Budget – potentially putting more money into the pockets of the common man – drive investment decisions for many individuals, say financial planners.
The government is looking at ways to incentivise the individual taxpayers in the upcoming Budget, news agency IANS reported last week citing a source privy to talks in the matter.
While direct taxes form a major source of income for the government, a hefty corporate tax cut late last year cost the government Rs 1.45 lakh crore in revenue. This came at a time the government is likely to miss its fiscal deficit target and may leave limited room to dole out cuts in personal taxes, say economists.
However, if speculations of income tax changes come true, the additional money in the pocket of the common man might help kickstart consumption at a time the economy has hit the worst pace of expansion in more than six years.
But how will the income tax structure be changed?
In its pre-Budget memorandum for 2020-21, industry body Confederation of Indian Industry (CII) has suggested the following revisions in income tax slabs:
| Income Tax Slab | Tax Rate For Individuals Below 60 |
|---|---|
| Up to Rs 5 lakh | Nil |
| Rs 5,00,001 to Rs 10 lakh | 10% |
| Rs 10,00,001 to Rs 20 lakh | 20% |
| Rs 20 lakh to Rs 2 crore | 25% |
| Above Rs 2 crore | 35% |
And this is how the income tax slabs are placed:
| Income Tax Slab | Tax Rate For Individuals Below 60 |
|---|---|
| Up to Rs 1.5 lakh | Nil |
| Rs 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Considering the steep rise in cost of living due to inflation, it is suggested that basic limit for exemption and other income slabs should be enhanced to give benefit to low income group, the industry body has said.
“While we understand that given the current low demand and revenue constraints, it would not be possible to rationalize the rates to a large extent. The government may look at creating a roadmap for reduction of tax rates for individuals, with the removal of all incentives and deductions,” the CII said.
Financial planners say some rationalisation should be carried out in the Budget to moderate the tax rates.
“Prevailing maximum exemption limit of Rs 2.5 lakh (non-senior citizen) has not been changed from last five years. Hence, there is need to increase the limit to Rs 3.5 lakh,” said Ashok Shah, partner, NA Shah Associates LLP.
“Currently, there is a steep jump of tax rates. Income up to Rs 5 lakh is taxed at 5 per cent and from Rs 5-10 lakh at 20 per cent,” he said.
Some rationalisation in super rich tax is also needed, he adds. “Last year, the Budget hiked surcharge rates for individuals due to which the highest tax rate has gone up to 42.74 per cent from 35.88 per cent which is a very high rate. Collection from such hike is expected to be very small,” explained Mr Shah. “Hence, surcharge on income tax should be brought down.”
Source: NDTV Profit
