Rising compliance, buoyant collections may prompt this move
In a move that could spread cheer among over 30 million individual taxpayers in the country, senior income tax officials are in favour of raising the existing exemption limit by Rs 40,000 to Rs 1,50,000 or even higher in the coming Budget.
The tax proposals for the annual Budget are finalised only in February, but income tax officials said raising the exemption limit is possible given rising tax compliance levels and a significant upsurge in direct tax collections on the back of a booming economy and better administration.
There is scope to raise the exemption limit. The government can raise the first income tax slab to Rs 1,50,001-Rs 2,00,000 per year, he said.
The other two slabs may also be tweaked.
Finance Minister P Chidambaram had raised the exemption limit on personal income by Rs 10,000 to Rs 1,10,000 in Budget 2006-07. However, officials said the move translated into a tax saving of only Rs 1,000 for an individual, which is minor in todays context of high incomes and prices.
CURRENT PERSONAL INCOME TAX SLABS AND RATES
Tax rates (%)
Up to Rs 1,10,000
Rs 1,10,001 to Rs 1,50,000
Rs 1,50,001 to Rs 2,50,000
Rs 2,50,001 and above
DIRECT TAX COLLECTIONS(Rs/crore)
Y-o-Y growth (%)
* Expected growth rate Direct tax includes personal income tax and corporation tax. Personal income tax accounts for 35% of direct income tax collections
If implemented, the increased exemption slab will save a taxpayer up to Rs 9,000 in taxes for income up to Rs 2,00,000 per year.
If income up to Rs 1,50,001 is exempted and tax levied at 10 per cent, the tax incidence will come down to Rs 5,000, a saving of over 64 per cent.
An increase in the exemption limit by Rs 40,000 will be a positive step, especially taking into account the way inflation has been increasing over the last several years, said Gaurav Taneja, partner, Ernst & Young.
Direct tax collections are expected to increase by 40 per cent in 2007-08 to over Rs 3,22,000 crore, the second year of such growth in a row.