Budget 2016 – Tax Exemption Threshold to be Raised to Rs 3 lakh
Budget 2016 – Tax Exemption Threshold to be Raised – Currently, tax is payable at 10% of the amount by which the income exceeds Rs 2.5 lakh.
Individual taxpayers could get some relief as finance minister Arun Jaitley is likely to raise the minimum income threshold for paying personal income tax for those below 60 years of age to Rs 3 lakh a year from Rs 2.5 lakh at present, multiple sources indicated.
The income levels where the tax kicks in for senior citizens (of age above 60 years) and super seniors (age above 80 years) could also be correspondingly raised. In case of senior citizens, the current threshold for paying tax is Rs 3 lakh while it is Rs 5 lakh for super senior citizens. However, the higher slabs are unlikely to be revised, the sources added.
Currently, tax is payable at 10% of the amount by which the income exceeds Rs 2.5 lakh (up to Rs 5 lakh), at 20% (between Rs 5 lakh-10 lakh) and at 30% (above Rs 10 lakh) in case of individuals up to 60 years of age and HUFs.
Jaitley may also reintroduce the extra window of Rs 50,000 for claiming deductions under Section 80C for investments in infrastructure bonds. Currently, various specified investments are eligible for deductions subject to threshold of Rs 1.5 lakh and additionally, a deduction of Rs 50,000 is allowed for contributions to the National Pension System under Section 80CCD.
The government is aggressively taking steps to bring in more individuals under the tax net but it also wants to reduce the burden on the lower strata of the tax-paying community to the extent possible. “Of course, we are taking measures to bring in more persons under the tax net. We have a target of about 10 million new tax payers to be added in the current financial year. Till November, we added 3.74 million new taxpayers because of these measures,” revenue secretary Hasmukh Adhia had said in a recent interview with FE. In India, there are about 35-40 million individual taxpayers, a tiny segment considering the country’s huge population.
“Considering the savings rate and inflation, the threshold limit (for personal income tax) is expected to be raised so as to provide more disposable income in the hands of the individual. This could help in channelising the higher disposable incomes towards increasing consumption and thereby the economic growth,” said Vineet Agarwal, partner at KPMG in India.
Although, Jaitley has already announced that his government cannot afford a ‘populist’ Budget and rather there are needs for structural reforms, he is unlikely to turn a blind eye to the demands from the individual taxpayers. “The finance minister could look at increasing the limit under Section 80C up to Rs 250,000 so that people channelise their savings into investment linked deductions,” said Divya Baweja, partner at Deloitte Haskins & Sells. The government extended the limit to Rs 1.5 lakh in 2014-15 from Rs 1 lakh earlier. This includes investments in schemes such as postal deposit, provident funds, pension schemes, mutual funds and insurance.
The deduction for NPS investment has helped individuals at higher tax brackets to save more funds. For instance by availing the Rs 50,000 of deduction for NPS, the tax burden for individuals in the highest 30% tax bracket could come down by Rs 16,000, while it will be Rs 10,000 for those on the 20% tax slab and Rs 5,000 for those paying 10% tax.
Source: Financial Express