Budget 2018: In what is widely expected to be a populist Budget, the government is likely to offer taxpayers some relief by levying personal income tax (PIT) only for those earning incomes above Rs 3 lakh per annum. Currently, the exemption limit is lower at Rs 2.5 lakh per annum. Government officials said the Union Budget for 2018-19, to be presented on February 1, may also enhance the limit for tax-free investments and expenses under section 80C of the Income Tax Act to Rs 2 lakh from Rs 1.5 lakh. These investments include those made in provident fund (PF) and public provident fund (PPF) schemes, life insurance premiums, equity-linked savings schemes and five-year bank deposits. The expenses include tuition fees and the principal repayment on home loans. There is a tax break for up to Rs 50,000 for investments made in the National Pension System (NPS) under section 80CCD, but that quota is unlikely to be increased, sources said. However, there is a chance that withdrawals from the NPS on maturity may not be taxed to the extent that they are now. Currently, 40% of the corpus on maturity is tax-exempt while 20% is taxed at the marginal rate. For the remaining corpus of 40%, individuals need to buy annuities from life insurers.
In the Union Budget for 2017-18, finance minister Arun Jaitley had left the income slabs unchanged but had provided marginal relief to the small taxpayer by reducing the rate to 5% from 10% for individuals with an annual income of between Rs 2.5 lakh and Rs 5 lakh.
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“Its unlikely that slabs will be tinkered with but since incomes between Rs 10 lakh and Rs 20 lakh are taxed a high 30%, the rate for this bracket may be lowered,” an official said. Currently, incomes above Rs 10 lakh are taxed at 30%; economists have for long pointed out that 30% rate kicks in way too early. By raising the cap for Section 80 C to Rs 2 lakh, the government would primarily be benefiting individuals in the lower income brackets. This is because for those in higher income brackets, the ceiling of Rs 1.5 lakh is often hit by the contribution to the Employees’ Provident Fund (EPF) alone.
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The last time the limit under Section 80 C limit was raised was in the Budget for 2014-15 when it was upped to Rs 1.5 lakh from Rs 1 lakh. While raising the ceiling for income-tax exemption could result in some loss to the exchequer, tax experts believe the government could try and recover some of this from higher investments in existing and new new tax-saving investment schemes. “Both household savings and institutional liquidity would go up,” said Akhil Chandna, director, Grant Thornton India. For 2016-17, the government had projected the revenue forgone on account of exemptions under Section 80 C exemption at just over Rs 55,000 crore. Some experts believe an increase in the basic exemption limit to Rs 3 lakh is fair, given it has remained unchanged for the last three year. “A higher limit for 80C tax saving would ultimately benefit the economy with more money coming in from taxpayer’s savings,” said Neha Malhotra, executive director, Nangia & Co.
