Govt mulls higher tax deduction limits, but with conditions
According to reports, the finance ministry is considering offering relief to taxpayers; there are discussions to increase the current Rs. 2L deduction limit to Rs. 2.5L. However, it will have conditions: the extra deduction of Rs. 50,000 will be available only to those investing in government infrastructure projects. It will impact approximately 7.5 million taxpayers in India. Find out more about the new proposal.
The current numbers and figures
Presently, those earning up to Rs. 2.5L annually don't have to pay taxes. Taxpayers get relief under Sections 80C, 80CC and 80 CCD of the I-T Act. Deductions are offered on PF, PPF, LIC and NPS investments, children's tuition fees and home loans. Last year, tax rate for those earning between Rs. 2.5L-5L was decreased from 10% to 5%.
Here's what the government is now mulling
Now the ministry is considering additional relief on investments in government infrastructure projects "in the form of bonds or through equity-linked savings schemes," an official said. The investments are likely to have a lock-in period, he added. Under this condition, "every Rs. 10,000 increase in deduction will lead to additional investments of Rs. 7,500cr" assuming 75L taxpayers, said Girish Vanvari, KPMG India head.
Exact quantum of relief depends on government's 'fiscal elbowroom'
"There is intent to give tax relief to as many taxpayers as possible, but a higher deduction will mean loss of revenue so the exact quantum of the relief will depend on the government's fiscal elbowroom," said a government official.
NDA's last full budget widely expected to be populist
Expectations from the NDA government's last upcoming full budget are many. There are reports this will be Arun Jaitley's most populist one yet, with relaxations in tax slabs and reductions in GST on insurance, apart from increased deduction limits. According to DNA, factoring in the impact of inflation, the I-T exemption limit of Rs. 2.5L, fixed years ago, is equivalent to Rs. 3.25L today.
But how likely are such measures considering government revenue?
BuT the government doesn't have much scope for relaxations, analysts note. I-T returns for 2015-16 show half of those who filed returns didn't pay taxes. Those having liabilities of up to Rs. 1.5L paid Rs. 24,000 average, up by 14% from 2012-13. Jaitley had said earlier that halving of tax rate for the Rs. 2.5L-5L slab would cost the government Rs. 15,000cr.
