JOIN US In a step aimed at reducing the burden on the common man, the new BJP-led government may increase the income-tax exemption limit from the existing Rs 2 lakh to Rs 3 lakh or more.
Giving citizens another reason to smile is the possible widening of tax slabs, with the government showing willingness to oblige on that front as well, said sources. The details of the same are being worked out.
The Budget for 2014-15 is likely to be presented in Parliament in the second week of July.
As per the current structure, there is no tax on income of up to Rs 2 lakh per annum; 10 per cent on Rs 2-5 lakh, 20 per cent on Rs 5-10 lakh and 30 per cent on annual income beyond Rs 10 lakh.
The Parliamentary Standing Committee on Finance, headed by senior BJP leader Yashwant Sinha, had proposed to raise the exemption limit to up to Rs 3 lakh per annum. Thereafter, tax would be imposed at 10 per cent for Rs 3-10 lakh, 20 per cent for Rs 10-20 lakh and 30 per cent on annual income that goes beyond Rs 20 lakh.
The exemption is provided under Section 80C of the Income Tax Act for individual taxpayers. With the exemption limit at Rs 1 lakh, the revenue foregone stands at Rs 31,000 crore. In 2013-14, there was a shortfall in tax collections.
Though direct tax collections exceeded the revised target of Rs 6,41,835 crore, they were still around Rs 23,000 crore below the original target.
If the government wants to cut taxes or enhance deductions, it will have to balance the foregone tax by boosting collections and ensuring stricter compliance.
For taxpayers, this implies greater scrutiny of income.
The Central Board of Direct Taxes (CBDT) has already sounded a warning by putting salary slips under the scanner. In October 2013, salaried taxpayers who claimed HRA (House Rent Allowance) exemption of more than Rs 8,333 a month had to report their landlord’s PAN.
The new tax forms, notified in April this year, seek a break-up of the exempted income received and capital gains earned by individuals.
Taxing the super-rich
The super-rich lot, however, may face a higher tax. The draft Direct Taxes Code (DTC) Bill had proposed 35 per cent tax on the super-rich with income exceeding Rs 10 crore.
The tax on the super-rich was first introduced by the then finance minister P Chidambaram in last year’s budget, but it was in the form of an additional surcharge of 10 per cent on a taxable income of more than Rs one crore.
The number of such individuals is less than 45,000 in India.
Another Budget announcement may include raising the tax exemption limit on home loans and health insurance premium.
The health insurance premium is likely to be raised by Rs 5,000, according to sources. Existing rules allow tax deduction on health insurance premium of up to Rs 15,000 for self and another Rs 20,000 for parents.