New Delhi: The 2019 interim budget on February 1 is likely to bring some good news for taxpayers. Ahead of 2019 Lok Sabha elections, Finance Minister Arun Jaitley may double the income tax (I-T) exemption threshold for the salaried taxpayers from the present Rs 250,000 to Rs 500,000, according to an IANS report.
With financial apathy on the rise after demonetisation drive, this pre-poll sop tactic by the PM Narendra Modi-led government is expected to benefit the middle-class segment of the society. FM Jaitley may also reinstate a tax-free status for medical expenses and transport allowance.
The demand to double the I-T exemption limit to Rs 500,000 was made by the Confederation of Indian Industry (CII) as one of its pre-Budget recommendations. The industry has also sought an increase in the deduction under Section 80C to Rs 250,000 to incentivise savings.
As the ruling BJP government is trying to outline its economic policy vision to remain in power, it would be interesting to see how these major changes could be made in the interim budget or vote-on-account budget, considering that not too many policy changes should be made.
As the Union Budget will precede the unveiling of the Direct Tax Code Report on February 28, tinkering with the tax slabs and rates before the release of the report will make it contentious, IANS has pointed out.
The new Direct Tax Code, which will replace the Income Tax Act of 1961, will try to bring more assessees into the tax net, make the system more equitable for different classes of taxpayers, make businesses more competitive by lowering the corporate tax rate and phase out the remaining tax exemptions that lead to litigation. It will also redefine key concepts such as income and scope of taxation.
At the moment, income up to Rs 2.5 lakh is exempt from personal income tax. Income between Rs 2.5-5 lakh attracts 5 per cent tax (see table), while that between Rs 5-10 lakh is levied with 20 per cent tax. Income above Rs 10 lakh is taxed at 30 per cent. Rs 5 lakh exemption is only applicable to individuals of over 80 years.
Also, tax free medical expenses up to Rs 15,000 and transport allowance up to Rs 19,200 per annum has been replaced with a Rs 40,000 standard deduction for those earning above Rs 5 lakh last year. This will benefit taxpayers to the tune of Rs 12,500 annually which is not much but can be viewed as a sentiment buster.
With acute farm distress, middle-class backlash, massive spike in unemployment data and rising Dalit anger taking its toll on the BJP, it would like to unleash a slew of course correctives. The 10 per cent quota for upper castes was part of this process to appease vote banks. But this was an executive decision adopted by parliament, tinkering with the tax structure similarly is a legislative decision.
Income Tax Slabs for Individual Tax Payers & HUF (Less Than 60 Years Old) for FY 2018-19 –
Income Tax Slabs Tax Rate
Income up to Rs 2,50,000* No tax
Income from Rs 2,50,000 – Rs 5,00,000 5 per cent
Income from Rs 5,00,000 – 10,00,000 20 per cent
Income more than Rs 10,00,000 30 per cent