Buzz is that the basic exemption limit may be increased from Rs 2.5 lakh to Rs 3 lakh in the Union Budget 2018. However, what are the other things FM Arun Jaitley can do for the taxpayers?
With the Union Budget 2018 just a couple of weeks away, everybody – including the salaried class – is looking towards Finance Minister Arun Jaitley with much hope. More because this is the last Budget of the Modi government before the 2019 polls and every one is expecting the Budget 2018 to be a populist one, which will help the government woo the masses.
Tax experts say that expectations of the taxpayers from the Union Budgets are always huge. Moreover, this being the last full budget before the elections – the expectation is even higher that this could be a budget for the common man.
For instance, “there is a lot of rumour that the basic exemption limit may be increased from Rs 2.5 lakh to Rs 3 lakh. However, if this is done, this may negatively impact the government’s objective of increasing the tax base. Only 3-4% of the people in India pay taxes and if the exemption limit is increased, this number will fall even further,” says Karan Batra, Founder & CEO of CharteredClub.com.
If this may not be a good step, then how can some sops be given to the taxpayers in the Budget 2018 to reduce their tax burden and give them some relief from the rising inflation and the impact of demonetisation?
1. Change in Tax Slabs
Alternatively, Finance Minister Arun Jaitley may think of changing the tax slabs and the tax rates while keeping the basic exemption limit of Rs 2.5 lakh intact. By doing this, “the government would be able to achieve the twin objective of reducing the tax burden per person while ensuring that the total tax base also increases,” says Batra.
2. Deductibles for children
The Modi government might like to introduce in the Budget 2018 deductibles for the children, who are now adults and wish to take care of their parents. For example, if a scheme was introduced whereby the children could open a retirement savings plan for their parents and claim it as deductible from their taxable income, which would be above the normal Rs 150,000 deduction u/s 80C. “This would encourage more investments to be made, which is beneficial for the government, while the tax deduction would be a welcome relief for the tax payer,” says Chetan Chandak, Head of Tax Research at H&R Block India.
3. Increase in the limits Section 80C deductions, allowances
Finance Minister Arun Jaitley should also focus in the Budget 2018 on increasing the limits of deductions under Section 80C of the Income Tax Act, 1961, as well as several other allowances for salaried employees, which are long due for a revision. For example, the limit of Section 80C deductions may be increased from Rs 150,000 to Rs 200,000. While this will help lower the tax burden of the middle class people to some extent, it will also induce people to invest more in tax-saving schemes, which will boost government revenue and will be a win-win for both. Similarly, there are many allowances whose limits need to be increased in the Budget 2018 as they have become outdated now.