No big Income Tax relief in Union Budget 2020

Amid pressure to channel resources for Rs 100 lakh crore infrastructure investment in Modi 2.0 tenure and staring at a shortfall of Rs 50,000 crore in disinvestment receipts this year, a tight-fisted government may not be able to deliver much on income tax relief front in the Union Budget in February.

However, plans are afoot to give the vast majority of the middle class a rebate by reducing the tax rate in the slab between Rs 5 lakh to Rs 10 lakh to 10% from the existing 20%. This move, the government thinks, will give a boost to a large number of sectors such as housing, automobiles, manufacturing and fast-moving consumer durables, struggling in the economic slowdown.

Around seven crore income taxpayers fall in the bracket of incomes up to Rs 10 lakh, which also includes those who file the returns but not pay any tax.

The tax exemption limit will, however, not be raised above Rs 2.5 lakh because the government does not want to let go the number of people, who file their income tax return, whether they pay any tax or not.

“The fiscal space is too scarce this time. However, the tax cut in this bracket (Rs 5 lakh to Rs 10 lakh) is expected to be a demand multiplier. It is being formulated keeping in mind the rising cost of housing, education and health services,” an official told DH, although stating that the income tax in the Budget preparation is at a very initial stage and it has to go through several rounds of consultations at various levels, including the Prime Minister's Office.

It will also give rise to more entrepreneurship activities and faster growth in small and medium sector enterprises, which in turn, will have a positive impact on the economy, he said.

The Union Budget has to make a substantially higher allocation on infrastructure sector without which it will be difficult to attain the Rs 100 lakh crore investment target by 2024, the official said.

An elaborate four-year investment plan on infrastructure is expected to be rolled out in the Budget.

Disinvestment target is expected to take a hit of about Rs 50,000 crore in the wake of Air India not generating much interest even this year and BPCL being postponed to next year. The Air India divestment roadshow overseas drew a lukewarm response recently.

This, along with the tax revenue shortfall and corporate tax outgo, is expected to exert substantial pressure on the fiscal deficit target of 3.3% this year.

The official said that the government is expected to give growth a priority, implying there is no such reservation on forgoing the target of 3.3% this year. The government, in fact, is expected to re-adjust the roadmap and relax the target for the next two years in order to pump prime the economy.