Ahead of union budget 2016 – 2017, the salaried class has voiced its expectation to bring down the income tax. But experts say that tax benefits for individuals are unlikely. Limited fiscal space may restrict the government from doling out any income tax benefits to individual payers, say experts.
However, this year the government stares at a difficult fiscal situation. Finance Ministry will have to strike a balance to accommodate the additional spending of nearly Rs 1,40,000 crore on the implementation of 7th Pay Commission report and One Rank One Pension scheme. The budget will also have to maintain its fiscal deficit targets and boost public investments in infrastructure which is likely to leave very little room for the policy makers to bring relief to the taxpayers.
Even in the last budget in 2015, there was little respite for individual tax payers. Even then, the income tax rate or exemption in tax limit was left untouched. Finance Minister Arun Jaitley proposed to raise the health insurance premium deduction from Rs 15,000 to Rs 25,000 per month and transport allowance from Rs 800 per to Rs 1,600 per month, which came as a small relief to the salaried class.
As of today, an annual income between Rs 2.5 to 5 lakh is taxed at 10%, income between Rs 5 – 10 lakh attracts 20% tax and income and any income above Rs 10 lakh attracts 30% rate.
“The room on the fiscal front is very limited. Therefore, it is unlikely that there will be any major concessions on the personal income tax side’’ says Taxation Expert Rajeev Dimri.
However, expectations are high that the government may announce an increase in tax exemption limit on savings.
“Government should hike tax-exempted savings limit to Rs 2.5 lakh from Rs 1.5 lakh at present, and re-introduce standard deductions for salaried employees to boost consumption”, says DS Rawat, Secretary General of industry body ASSOCHAM.
Many experts say that Jaitley must find ways to double the number of income tax payers and broaden the tax net without raising taxes. In a country of more than 125 crore people, only 3.5 crore people fall under the income tax bracket. The Tax Administration Reform Commission pointed out that only 3.3% of the population pays income tax in India, which is very low compared to 39% in Singapore, 46% in the US, and 75% in New Zealand.
The government collected Rs 6,96,200 crore revenue under the direct taxes kitty in 2014-15, which was about 14 % short of the projected target of Rs 7,05,000 crore.
“It’s imperative to reconsider the tax collection method to move towards the untapped payers who are mostly into the un-organised sector,” said taxation expert Sanjiv Chaudhary.
Corporate India too has its list of expectations. They want the Finance Minister to outline a clear roadmap for reducing Corporate Tax. In his 2015-16 budget, FM Jaitley had promised a 5 % cut in corporate taxes over four years from 30 % to 25 % in a phased manner. The industry chambers including CII and FICCI and ASSOCHAM have suggested that the withdrawal of incentives should be in tandem with the reduction in corporate tax.
“As far as taxation is concerned, we wish to see a clear roadmap on the 25 % reduction in corporate tax,” said FICCI President Harshavardhan Neotia.
Jaitley has himself pitched for simpler income tax and also clarified that the government is examining the recommendations of the Parthasarathi Shome Committee on tax administration reforms. He conceded that simple tax laws will also help cut down litigation and improve tax collections.
All eyes are on FM Jaitley, who unveil his third budget on February 29.