InvestorQ : What are the key expectations from the budget on tax slabs and exemptions on income tax?
manisha Kolvenkar made post

What are the key expectations from the budget on tax slabs and exemptions on income tax?

Mahima Roy answered.
2 years ago

When the government cut corporate tax rates aggressively in September last year, it did build massive expectations that it would do an encore on the personal tax front too. With an economic slowdown, there is a sharp demand for more tax breaks. Here is what the budget could do on slabs and exemptions.

Ideally, the budget must look to rationalize the tax slabs in this case. The Budget 2019 had made incomes up to Rs.5 lakhs tax free but this benefit is not available for individuals earning marginally above that limit. Instead of offering a rebate, which is complicated, the government can simplify and make incomes up to Rs.5 lakhs totally tax exempt. The government must also look at an Asian style model where the peak rate of tax is limited to 10% up to an income level of Rs.20 lakhs. This could be a huge consumption boost for the economy and the equity markets, especially the entry level demand.

It is time to meaningfully enhance the Section 80C limits; not just in bits and pieces. The Section 80C limit has stayed at around Rs.1.50 lakhs for a very long time. The eligible investments have increased but the limits have not kept pace. The government must look to right away expand the limit to Rs.3 lakhs and the NPS can be integrated into this overall limit. That simplifies and also gives people more flexibility. Today, middle income earners are left with little to benefit after their PF, insurance and tuition fees of children are factored in. That is just not enough.

It is also time to realign Section 24 benefits to the cost of housing in India. The Section 24 limit for home loans was expanded to Rs.2 lakhs but it is still too inadequate if you consider the cost of apartments in even the second rung cities in India. The government must look to increase this limit in a big way to around Rs.4 lakhs so that it can be more meaningful for mid range apartments in most of the towns and cities. That could also give a big boost to housing demand; normally a demand leader. The time is ripe for the budget to try it out.