FM Arun Jaitley could raise income tax exemption limit to Rs 3 lakh in Budget
January, 23rd 2015
The government may go in for raising the income tax exemption limit to Rs 3 lakh from Rs 2.5 lakh in the Union Budget 2015-16 to place more money in the hands of consumers so that demand picks up. If the proposal is approved, it is also likely to entail some changes in the tax slabs bringing more relief to people in the lower-income brackets and taxing those in the high-income slabs more.
The lowest slab will cover those in the Rs 3 lakh-Rs 10 lakh bracket and they will be charged 10 per cent. Earlier, the lowest slab extended up to Rs 5 lakh. Those in Rs 5 lakh-Rs 10 lakh slab had to pay 20 per cent tax.
According to sources, the government is also considering a proposal to tax the super-rich, who pay 10-per cent surcharge on their 30-per cent tax liability (tax on tax) at a much higher rate of 33 per cent. Currently, the highest tax rate is 30 per cent for those with a taxable income of more than Rs 10 lakh. The superrich, who have a taxable income exceeding Rs 1 crore, pay 10 per cent surcharge on the 30-per cent rate they are charged. This means that if their tax liability is Rs 1 lakh based on the 30-per cent rate, they pay an extra Rs 10,000 as the 10-per cent surcharge on their tax. There are only 42,800 individuals in this bracket. India Inc has been opposed to such a high rate of taxation on grounds that it serves as a 'disincentive'.
Tax expert Subhash Lakhotia said that the government should keep tax rates low as very high tax rates encourage generation of black money. "Besides, with high corporate and income tax rates, it would become difficult to attract investment as tax rates in places like Singapore and Hong Kong are much lower," he added. Interestingly, the DTC Bill introduced by the erstwhile United Progressive Alliance government, had also proposed a fourth slab with a 35-per cent tax rate for those with an annual income of more than Rs 10 crore drawing protests from industry.
Union finance minister Arun Jaitley in the Union Budget last July raised the income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh, which provided some relief to more than 2 crore taxpayers. High interest rates have reduced the purchasing power of the consumer, which is reflected in the contraction in output of consumer goods. This has in turn has dragged down the growth rate.
The government is also reported to be looking at recommendations of the SIT on black money on ways to curb unaccounted money. The SIT has suggested that since most of the black money in the country is held in hard cash, there should be an upper limit such as Rs 15 lakh or even more on the amount of cash that an individual can keep. The SIT has further recommended that tax evasion should be considered a "predicate offence" punishable with a jail term.
However, at the same time the government is aware that there is a need for a non-adversarial tax regime to attract more investment to boost growth. According to sources, the government is also considering a proposal to exempt from tax interest on fixed deposits with banks that have a maturity period of more than three years. Senior bankers have been urging the government to provide this concession in order to encourage savings.