In a bid to incentivise savings and leave something more with the middle class taxpayer, the finance minister is expected to bring in some adjustment in the tax slabs in the forthcoming
Budget – the last full year Budget before the general elections in 2019. Sources said that the government may also provide greater incentive for saving by way of increasing deductions available on taxable income as savings rate in the country has been on a decline.
While the government offered little to the taxpayers by way of deductions and exemptions (available on income tax) in the Union Budgets presented over the last three years, the finance minister announced to reduce the lowest tax rate from 10 per cent to 5 per cent last year, thereby providing a benefit of up to Rs 12,500 to all tax payers.
“There may be some more tweaking in the tax slabs this year for the benefit of tax-payers,” said a government official who did not wish to be named. He further added that, “The government may also consider to either increase the limit of deduction available on taxable income from existing Rs 1.5 lakh or increase the limit of deduction available on interest component of housing loan from current level of Rs 2 lakh.”
Some say that the government needs to provide something extra to the middle class in a bid to push demand in the economy after the moves such as demonetisation and GST that resulted in some decline in demand in the economy.
Having implemented the biggest indirect tax reform in the country in the form of the GST, the government is expected to move on the direct tax front now. The Centre last November appointed a task force to reform the Direct Tax laws. The panel is headed by top revenue department official Arbind Modi, who had assisted the former finance minister P Chidambaram in preparing the direct tax code. The seven member task force would draft direct tax laws in line with tax laws prevalent in other countries, incorporating international best practices.
The change in direct tax laws are expected to bring in much needed relief to the individual tax payers as the government goes for polls in 2019.
Not much has come to the small tax payer over the last three years in terms of bonanza from Budget for the middle class. While in the Budget 2017-18, the finance minister announced to half the tax rate to 5 per cent for income falling between Rs 2.5 lakh and Rs 5 lakh and thus provided a benefit of up to Rs 12,500 to all, he took back some of the gains from those earning up to Rs 5 lakh as he reduced the maximum rebate available to individuals under section 87A from Rs 5,000 to Rs 2,500. He also moved to tighten the eligibility criteria for this rebate and said that it would only be available to resident individuals whose total income does not exceed Rs 3,50,000.
While some benefits came the taxpayers way in 2017-18, the government took away some. The government announced to cap the deduction on home loan interest payment at Rs 2 lakh per year for people who were renting out the house bought through a home loan. Earlier, the entire interest component was allowed to be deducted in case there was a capital loss to the home owner.
Source: indianexpress.com