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Tax Exemption Limit Can Be Raised in Budget: EY
February, 17th 2015

Global consultancy EY believes there is room for Finance Minister Arun Jaitley to raise the basic income tax exemption limit in his first full-year Budget presentation on February 28.

"The basic exemption limit could be increased from the current exemption limit of Rs. 2.5 lakh keeping in mind the inflationary trends. This would place more disposable income and spending power in the hands of a common man," said Amarpal S. Chadha of EY.

At present, the basic exemption limit stands at Rs. 2.5 lakh. Individuals under 60 years of age don't have to pay any taxes for income up to Rs. 2.5 lakh, those earning between Rs. 2.5- 5 lakh are taxed at 10 per cent, while individuals with income between Rs. 5-10 lakh are taxed 20 per cent. High earners with income above Rs. 10 lakh are taxed at 30 per cent.

The existing slabs too could be rejigged, EY said. From the new increased threshold limit up to Rs. 10 lakh it could be 10 per cent, from Rs. 10-20 lakh it could be 20 per cent and above Rs. 20 lakh it could be 30 per cent, EY said.

For the salaried class, exemption limits for various allowances could also be increased as they are quite archaic, EY said.

"Considering the inflation and increased costs, finance minister could consider raising the exemption limits for various allowances i.e., transportation allowance (existing limit is Rs. 800 per month), children education allowance (currently, Rs. 100 per month) and leave encashment exemption limit (currently, Rs. 3 lakh) provided to salaried individuals as these limits were fixed almost a decade ago," the consultancy said.

To ease the tax burden and improve disposable income for salaried employees, Mr Jaitley should consider bringing back standard deduction - which was meant to compensate the salaried class till the tax year 2004-05 - to a fixed amount or a fixed percentage of salary, EY said.

"This would also reduce the disparity between salaried and business class with only the latter being eligible for deduction for expenses incurred by them for earning their income," it said.

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