Marginal hike in I-T exemption limit likely
Move aimed at promoting ‘feel good’ factor to spur demand in economy
The Centre is likely to go in for a marginal increase in the income tax exemption limit in its forthcoming general budget, according to sources in the finance ministry.
At the same time, Finance Minister Pranab Mukherjee is unlikely to lower the rates for various income groups so that resource mobilisation for various socio-economic programmes is not affected.
“The income tax exemption limit, which is currently Rs 1,50,000, is likely to be raised marginally in the range of Rs 30,000 and Rs 35,000. Any change in the existing tax rates is unlikely,” sources close to the budget-making exercise told Deccan Herald.
Even though the government is aware of the fact that a substantial increase in the exemption limit may lead to revenue loss, it is inclined to take some fiscal measures in the budget to promote a “feel good” factor in the economy, currently hit by the slowdown.
“A marginal hike in income tax exemption limit, when the economy is witnessing an overall contraction in the demand cycle, will leave a little bit more money in the consumer’s pocket. This type of fiscal gesture will have a feel good impact on the economy,” sources said.
The Tax Research Cell (TRC) in the budget division of the finance ministry, which provides inputs for tax proposals, is understood to be vouching for fiscal measures that can inject a “feel good” factor into the economy. The TRC is understood to have prepared a list of tax measures in this direction and a marginal hike in the income tax exemption limit is one such measure, sources said.
While acknowledging the fact that a “marginal” hike in the income-tax exemption limit will lead to some revenue loss, the TRC believes that the very injection of a “feel good” factor into the economy will have a positive spiraling effect on the “demand dynamism.”
The TRC is understood to have argued that triggering of a “demand dynamism” will spur production, which would ensure more revenue for the government. As far as change in the rates is concerned, the TRC is understood to have argued in favour of a status quo approach. While lowering of I-T rates is not desirable given the tight revenue position of the government, any hike on the other hand will further dampen the demand cycle of the economy, the TRC has cautioned.
