Budget 2020 expectation for personal income tax: Tax experts believe that the government may rejig the income tax slabs, or cut certain tax rates, in a bid to boost household savings and economic growth in coming years. However, some believe that a cut in personal income tax may not result in economic growth. In one of its recent ‘Ecowrap’ reports, SBI Research echoed this by noting, “Analysts are contemplating that cutting personal income tax will not help in propelling economic growth as only 4% of the population pay taxes. However, they contribute a significant part to overall consumption and in FY19 overall estimated gross taxable income of this 4% population is Rs 46 lakh crore, which is 40.8% of the overall private final consumption expenditure.”
“Hence it is inevitable to tweak both the slabs and rates to increase consumption, which is key to the growth,” the report added.
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SBI Research believe that there is a need to change the tax rate in slabs of Rs 5-10 lakh and above Rs 10 lakh.
“We believe that in order to boost the consumption through increase in personal disposable income there is a need to change the tax rate in slab of Rs 5-10 lakh and more than Rs 10 lakh. For example, a 5% cut will impact around 30 million tax payers and cost Rs 75,000 crore to the exchequer,” SBI Research said.
The SBI Research has proposed to tax income up to Rs 2.5-Rs 5 lakh at 5%; Rs 5-Rs 10 lakh at 15 per cent and over Rs 10 lakh at a fat 25 per cent.
Divya Baweja, Partner, Deloitte India, told FE Online, “With high of cost living and rising prices, there is a high expectation by individuals that the government would take adequate measures to increase their disposable incomes to meet their consumption requirements as well as plan for future savings.”
“A cut in personal tax is one of the most popular and long-pending demands of salaried individuals considering the rising cost of living standard and inflation. This is quite likely as the government may want to increase the purchasing power of and consumption by individuals to boost demand in the economy,” he added.
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Baweja made following suggestions:
- Keeping in view the cost of living trend in the economy, the government could consider increasing the minimum slab limit for the amount not chargeable to tax, from Rs 250,000 to Rs 500,000. The limit was last raised in the Budget of 2014, which was 6 years back.
- Similarly, the slab rate of Rs 10 lakh for levy of the highest tax rate of 30 per cent, can be increased to Rs 20 lakh. This may be accompanied by a new slab for Rs 10 to 20 Lakh at a 20% tax rate and the 10% tax rate could be re-introduced for the 5 to 10 lakhs income slab.
- Keeping in view inflation rates the Finance Minister could consider increasing the tax slabs and also bring down the tax rate by 5 per cent making the maximum slab rate at 25 per cent. This would leave some more money at the disposal of the common man.
“A decrease in the slab rates is also hoped from coming Budget 2020. Alternatively, there might be an increase in the standard deduction from salary income to Rs.75,000 in case there is no change in slab rates,” said Abhishek Soni, CEO of Tax2win.
Source: Financial Express
