Budget 2017: Will income tax exemption limit be hiked to Rs 4 lakh? Chances are less!

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Updated: January 19, 2017 11:26:23 AM

FE Online decided to ask tax experts on how realistic is it to expect such a massive increase in the exemption limit.

Budget 2017, Budget 2017 tax, Budget 2017 tax news, Budget 2017 income taxWill Budget 2017 bring a lot of cheers for tax payers post the pain of demonetisation? (Reuters file photo)

Will Budget 2017 bring a lot of cheers for tax payers post the pain of demonetisation? Finance Minister Arun Jaitley has indicated that the benefits accruing to the government as a result of the move to ban old Rs 500 and Rs 1000 notes is likely to eventually translate into gains for the tax payers. “Once they (digital transactions) are substantially digital, they get caught in tax net. Therefore, the future taxation level would be much higher than what is currently being collected. This would also enable the government at some stage to make taxes more reasonable, which will apply to both direct and indirect taxes,” Jaitley has said.

Separately, a report by India Today also suggests that the Finance Ministry is considering raising the current tax exemption limit from Rs 2.5 lakh to Rs 4 lakh. FE Online decided to ask tax experts on how realistic is it to expect such a massive increase in the exemption limit and what other measures should the Modi government look at introducing for the benefit of the common man.

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Amarpal Chadha, Tax Partner & India Mobility leader for EY doesn’t think that a hike to Rs 4 lakh is possible as of now. “There are chances that a hike in tax exemption limit may be announced, but I am not sure if it will go up to Rs 4 lakh. Realistically the Finance Minister may announce a hike from the current Rs 2.5 lakh to Rs 3 lakh or maybe even Rs 3.5 lakh. Rs 4 lakh would be a lot, because then a lot of people who currently pay tax would go out of the ambit,” he told FE Online. “The government has to look at widening the tax base, which may automatically happen with all the transactions being tracked and the focus on digital and Aadhaar-linked transactions. So yes, there may be room to hike the tax exemption limit, but may be not to Rs 4 lakh,” he added.

Parizad Sirwalla, Partner and Head, Global Mobility Services, Tax at KPMG in India is of the view that FM Jaitley may look to increase the spending power of people. “If demonetisation would not have happened, I would not have expected any populist measure in Budget 2017 on the tax front. But with all the pain the people are feeling because of the implementation of the move, there are chances that Budget 2017 may see measures that will increase the spending power in the hands of the common man,” she told FE Online. “To what extent that would happen is anybody’s guess. I don’t think the tax rates will be tinkered with, but there is a case to change the tax slabs. There may be a marginal increase in the tax exemption limit from Rs 2.5 lakh, but the loss to the exchequer also has to be taken into account,” she noted.

So, what else should the Finance Minister consider? Amarpal Chadha of EY believed that Jaitley “should definitely look at giving some relief to the salaried tax payers”. “At 2.5 lakh exemption, they don’t really stand to gain much. For them, I think the standard deduction should be reintroduced. This could be to the amount of Rs 25,000 or even Rs 30,000,” he recommends.

Parizad Sirwalla of KPMG wants all pension products to be given a level playing field. “There is a lot of ambiguity when it comes to NPS, PPF etc, so that needs to be sorted out,” she said.

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