Aware of the middle-class snub in the 2019 general elections, Finance Minister Arun Jaitley might double the income tax exemption threshold for the salaried class from the present Rs 2.5 lakhs to Rs 5 lakh, according to sources. He might also reinstate the tax-free status for medical expenses and transport allowance, providing some relief to the sector. Hence the plan to streamline tax slabs, which in any case are in consonance with the coming Direct Tax Code, government sources told news agency IANS. However, propriety demands that not too many policy changes should be made in a vote-on-account budget.
At the moment, income up to Rs 2.5 lakh is exempt from personal income tax. Income between Rs 2.5-5 lakh attracts 5 per cent tax, while that between Rs 5-10 lakh is levied with 20 per cent tax. Income above Rs 10 lakh is taxed at 30 per cent. Rs 5 lakh exemption is only applicable to individuals of over 80 years.
But there could be a problem that the Interim Budget will precede the unveiling of the Direct Tax Code Report on February 28. Tinkering with the tax rates before the release of the report will make it contentious. The new Direct Tax Code will try to bring more assessees into the tax net, make the system more equitable for different classes of taxpayers, make businesses more competitive by lowering the corporate tax rate and phase out the remaining tax exemptions that lead to litigation. It will also redefine key concepts such as income and scope of taxation.
Also, tax free medical expenses up to Rs 15,000 and transport allowance up to Rs 19,200 per annum has been replaced with a Rs 20,000 standard deduction for those earning above Rs 5 lakh last year. This will benefit tax payers to the tune of Rs 12,500 annually which is not much but can be viewed as a sentiment buster.
Income Tax slabs for individual taxpayers and Hindu Undivided Family (less than 60 years old) for FY2018-19:
Income up to Rs 2,50,000: No tax
Income from Rs 2,50,000 - Rs 5,00,000: 5%
Income from Rs 5,00,000 - 10,00,000: 20%
Income more than Rs 10,00,000: 30%