Budget 2018: As the cost of living has gone up with no corresponding effect on income, the expectation from FM Arun Jaitley this time is a modification in the current income tax slab structure and widening in the annual income brackets.
Budget 2018: As the final countdown to the Union Budget begins, the common people – including taxpayers – are waiting with bated breadth what is in store for them. After all, this would be the Modi government’s first budget post-GST and the last full budget before the polls of 2019. So, this is expected to be a populist one. Also, there are expectations galore this time from Finance Minister Arun Jaitley because the Budget 2017 did very little about meeting the expectations of individual stakeholders and had left them disappointed.
In fact, hit hard by the note ban as well as high inflation, the aam aadmi was looking for some relief from the Union Budget 2017. However, FM Jaitley only reduced the tax rate from 10% to 5% for the income tax slab of Rs 2.5 lakh to Rs 5 lakh, which resulted into a reduction in tax liability of all persons below Rs 5 lakh income either to zero (with rebate) or 50 per cent of their earlier liability. Giving his rationale for the rate cut, while presenting the Budget 2017, FM Jaitley had said that the present burden of taxation was mainly on honest tax payers and salaried employees who were showing their income correctly. Therefore, post-demonetisation, there was a legitimate expectation of this class of people to reduce their burden of taxation. The Finance Minister had further said that if a nominal rate of taxation was kept for lower slab, many more people would prefer to come within the tax net.
Watch Video: Will Tax Slabs Be Revised In Budget 2018?
However, as the cost of living has gone high with no corresponding effect on income, the expectation this time is a modification in the current income tax slab structure and widening in the annual income brackets, which would be in line with the cost of living standards.
“Reduction in the tax rate from 10% to 5% in the Budget 2017 was a big relief to those earning up to Rs 5 lakh a year. However, given the impact of retail inflation, a substantial relief is needed for the middle-income income tax slab (Rs 5 to Rs 10 lakh). This slab can be rejigged to exclude those earning up to Rs 7 lakh, keeping the 20% tax rate consistent. The highest income group should be raised to above Rs 12 lakh,” says Adhil Shetty, CEO, Bankbazaar.com.
Current Income Tax Slabs
Income Group (In Rupees)
Current Tax Slab (In %)
0 – 2,50,000
2,50,000 – 5,00,000
5,00,000 – 10, 00,000
Expected Income Tax Slabs
Income Group (In Rupees)
Desired Tax Slab (In %)
0 – 3,00,000
3,00,000 – 7,00,000
7,00,000 – 12, 00,000
Above 12, 00,000
Tax experts are also of the view that FM Arun Jaitley can increase the income tax slabs in the Budget 2018 to provide relief to the lower section of society. Also, the basic exemption limit has not been changed since last 3 budgets in consonance with the rate of inflation. With this limit, it becomes troublesome for the common man to meet his standard of living. Therefore, it should be increased to at least Rs 3 lakh.
Moreover, “when the Modi government presented their first budget in their present term, it came up with the increase in the exemption limit. Since this is the last full Union Budget, so we can expect the same move keeping in mind the political front. Further, after the implementation of the 7th Pay Commission, there has been a considerable rise in the personal income of the people and accordingly, the basic exemption limit needs to be raised,” says CA Abhishek Soni, Founder tax2win.in.
Soni expects that this move would be great news for the small taxpayers as it will enable them to save and invest more. It will also impact the government in a positive way. However, “in order to neutralize the effect of raising the exemption limit, the government might increase the surcharge rate so as to charge more tax from the higher section of society. To reduce the common man’s tax burden and minimize the influence of demonetization and GST, there is an intense need for this step,” he says.