The middle class can expect a big relief in Union Budget 2018, which will be the last budget of the Narendra Modi government before the elections next year. PTI reported quoting unidentified sources that the Union Finance Ministry is contemplating to hike personal tax exemption limit and tweak the tax slabs.
The suggestion before the ministry is to hike the tax exemption limit to at least Rs 3 lakh if not Rs 5 lakh. The existing limit is Rs. 2.5 lakh per annum. There were reports that Union Finance Minister Arun Jaitley may increase section 80C investments limit to Rs. 2 lakh in the Union Budget 2018.
Besides, the tinkering of tax slab is also being actively considered by the ministry to give substantial relief to middle-income group, especially the salaried class, to help them tide over the impact of retail inflation.
In Union Budget 2017, Jaitley had left the slabs unchanged but gave marginal relief to small taxpayers by reducing the rate from 10 percent to 5 percent for individuals having an annual income between Rs 2.5-Rs 5 lakh.
In the budget, the government could lower tax rate by 10 percent on income between Rs 5-Rs10 lakh, and levy 20 percent rate for income between Rs 10-Rs 20 lakh and 30 percent for income beyond Rs 20 lakh. Currently, there is no tax slab for income between Rs 10-Rs 20 lakh.
"Considering the steep rise in the cost of living due to inflation, it is suggested that basic limit for exemption and other income slabs should be enhanced to give benefit to the low-income group. The income trigger for peak rate in other countries is significantly higher," industry chamber CII said in its pre-Budget memorandum to the finance ministry, reports PTI.
Many changes in the direct tax structure including income tax are expected in the coming budget. The industry chambers want the government to reduce peak tax slab to 25 percent, but due to pressure on fiscal deficit, it is doubtful that whether the ministry will agree to it or not.
The subdued indirect tax collection following the rollout of Goods and Services Tax (GST) from July 1, 2017, has put pressure on the fiscal deficit. The fiscal deficit has been set at 3.2 percent of the GDP for 2017-18. The government had recently raised borrowing target by additional Rs 50,000 crore for the current fiscal to meet the shortfall.
Union budget will be presented on February 1.