Expectations are soaring among Indian taxpayers, who are eagerly awaiting new finance minister Nirmala Sitharaman's maiden budget speech on July 5. Most of the taxpayers are hoping for further revision in income tax slabs and individual rates.
Some people said they want the new finance minister to further increase the basic exemption limit from Rs 2.50 lakh to Rs 5 lakh. A few others want the government to increase income tax deduction under Section 80C of the Income Tax Act.
But is it possible for Nirmala Sitharaman to propose further changes to income tax, given the current fiscal situation of the country?
Basic exemption limit to be increased to Rs 5 lakh?
According to tax experts, the government is unlikely to increase the basic income tax exemption limit in this year's full budget as it had already announced a provision where individuals earning up to Rs 5 lakh can get full tax rebate under Section 87A.
But such taxpayers will be required to file income tax returns even if they have zero tax liability.
Some experts feel that increasing the basic exemption limit to Rs 5 lakh will defeat the purpose of the interim budget announcement. Increasing the basic exemption limit will not require many people to file income tax and it could result in a dip in tax filing.
Since the Narendra Modi-led government's focus has been on increasing taxpayer base in the country, a move to increase the basic income tax exemption level would not prove to be a wise move, suggested several tax experts.
However, the government could tweak the existing tax slabs in a way that 10 per cent tax rate applies to those earning up to Rs 10 lakh from the existing 20 per cent.
For people earning more than Rs 10 lakh and up to Rs 15 lakh, experts suggest that the government could bring down the rate from existing 30 per cent to 20 per cent. The 30 per cent tax rate could apply to any person earning more than Rs 15 lakh.
But the government is not only looking to increase the taxpayer base but also want to increase revenue from taxes as it needs to invest aggressively to revive growth. Therefore, there are high chances that the government would not tinker with income tax rules in the full budget.
Since income tax collections have been lower than expected, it is highly unlikely that the government will increase the basic exemption limit in income tax from Rs 2.50 lakh to Rs 5 lakh.
What you can expect?
Some minor tweaks related to tax deduction under some sections of the Income Tax Act could be announced for providing more tax-saving options to salaried taxpayers. However, any change in the basic exemption limit seems highly unlikely.
