Budget 2019: Increase in basic exemption limit – A basic expectation

New Delhi | Published: February 1, 2019 10:43 AM

Budget 2019: A satisfied working population could pave the way for a fast growing nation and its economy and optimizing taxes is only the beginning in that direction.

Budget 2019-20The new Direct Tax Code (DTC) which is currently being drafted by the Government of India is expected to make income tax rates more ‘progressive’ by providing relief to people in 5 per cent and 20 per cent slabs.

By Sudhakar Sethuraman, Radhika Viswanathan and Rajesh Ramachandran

Budget 2019: With Budget 2019 around the corner, individuals have built their own set of expectations. Budget 2019 garners more attention than other years and raises hopes of being a taxpayer-friendly budget. Before we get on to the specific expectations from this year’s budget, let us look at how Budget 2018 fared.

While there were many proposals aimed at boosting the infrastructure, re-instating standard deduction was probably the notable benefit for the salaried class. Every common man’s expectation from a budget is an increase in the Basic Exemption Limit (BEL). Why is there so much hope for an increase in BEL? Mainly because the last major increase in BEL was during the financial year 2014-15 (AY 2015-16) which was five years ago. The only increase that Budget 2016 had was an increase of rebate from INR 2,000 to INR 5,000 for those earning below INR 5 lakh.

Would an increase in BEL make the common man happier than any other personal tax-related amendments – The answer seems to be a definitive yes, simply because an increase in BEL would mean a blanket exemption. On the other hand an increase in deductions under section 80C, 80D etc. would mean investing the same with the income earned (there is an outflow of money in this case). In other words, an increase in BEL would leave taxpayers with more cash to spend which whether invested or expanded would help businesses and contribute to the growth of the economy though in an indirect way.

Also Read: Budget 2019 Live: Litmus test for Modi government as Piyush Goyal goes for the final push

Therefore, this would top the list of expectations of the common man. Doubling the BEL to INR 5 lakh is one of the major expectations as reported by Press Trust of India (PTI) in a release dated January 9, 2019,*.

One also hopes that the income slab attracting the 30 per cent tax rate would be increased from the existing limit of INR 10 lakhs. With the growth of the economy and enhanced pay levels, there is a significant percentage of the working class that pays tax at the highest rate of 30 per cent and any change in either increasing the threshold from INR 10 lakhs or reduction in the tax rate would provide relief to this section of the population.

Last November, the finance ministry had set up a six-member council to rewrite the over 50-year-old income tax law in order to bring it in conformity with international best tax practices and the economic needs of the country. For instance, countries like Australia and Japan have a tax rate of 30 per cent approximately for income exceeding INR 45 lakhs and 90 lakhs (converted to INR) respectively whereas in India the same is applicable for income exceeding INR 10 lakhs which is substantially higher as far as the average individual tax cost is concerned. The new Direct Tax Code (DTC) which is currently being drafted by the Government of India is expected to make income tax rates more ‘progressive’ by providing relief to people in 5 per cent and 20 per cent slabs.

Increase in the basic exemption limit combined with a reasonable reduction in the tax rates and enhanced limits for deductions (be it on investments, health spends or property acquisition) would bring cheer to the taxpayers especially in the wake of rising inflation and also give them the much-needed relief from the existing tax burden. A satisfied working population could pave the way for a fast growing nation and its economy and optimizing taxes is only the beginning in that direction.

Sudhakar Sethuraman is Partner, Deloitte India; Radhika Viswanathan is Director with Deloitte Haskins & Sells LLP and Rajesh Ramachandran is Assistant Manager with Deloitte Haskins & Sells LLP

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