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Changing income tax slab a 'political call'
February, 11th 2015

The Narendra Modi government, in its first budget in July last year, had raised the personal income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh. For senior citizens, the limit was raised from Rs 2.5 lakh to Rs 3 lakh. "The final call on reworking tax slabs or exemptions in the Budget will be taken by the PM and the FM," an official in the finance ministry said.

Both Modi and finance minister Arun Jaitley have said that the government believes in a low tax economy and does not want to burden the people with high taxes. But a tight fiscal situation has prevented them from carrying out any big bang tax relief. Jaitley has earlier said that he is against reducing exemptions to widen the tax net and that he would like to expand the ambit but the tight fiscal situation was making his task difficult.

Officials say that the revenue department is concerned that if major tweaking of the tax slabs is done then a large chunk of taxpayers may go out of the net. "This will have to be a political call," the official said, adding that there would be no significant dent to revenue receipts even if a few thousand taxpayers go out of the net. Tax experts backed the idea of relief for individuals and companies.

"For individuals there is a need to have a re-look at exemption and for companies there is a need to have a look at the dividend distribution tax and the minimum alternate tax for special economic zones. For companies the effective tax rates can go up to 48% if you include the dividend distribution tax," said Dinesh Kanabar, CEO, Dhruva Advisors.

The government is struggling to meet the fiscal deficit target of 4.1% of gross domestic product set for the current fiscal year against the backdrop of slowing revenues.

Reforming the tax administration and the taxation structure has been a priority for the government as it has moved to heal the wounds from the stinging impact of retrospective taxation. The government has also undertaken a major exercise to make the tax administration friendly for tax payers and has laid down guidelines for the department's interaction with companies and individual taxpayers.

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