The Union Budget 2019 is going to be presented soon, and with this all eyes are now set on the newly-appointed Finance Minister Nirmala Sitharaman’s maiden budget. Will the basic exemption limit for individual taxpayers be raised or will there be some changes in the income tax slabs and rates? Will the 80C limit be increased or something more will be done for senior citizens? There are expectations galore and everyone – ranging from salaried persons to senior citizens – is sharing his budget wishes with the Modi government.
In its pre-Budget memorandum to the government, industry body ASSOCHAM, for instance, has sought the basic exemption limit for an individual income tax payee to be raised to Rs 5 lakh from Rs 2.50 lakh at present, in the backdrop of the inflationary impact over the years. However, is this possible, given the fact that relief under Section 87A has already been extended in the Interim Budget 2019, making annual income up to Rs 5 lakh tax-free? Here’s what tax experts say.
“The government has always targeted to increase the tax base of the country and this is evident from a huge jump in filing of return by 130% from FY 2013-14 to FY 2017-18. As per the existing tax provision applicable for AY 2020-21, individuals having taxable income up to Rs 5 lakh are allowed to claim rebate under Section 87A up to their actual tax liability. However, such taxpayers are required to file their income tax return. Increasing basic slab rates from Rs 2.5 lakh to Rs 5 lakh would defeat the very purpose of the government to increase the tax base because then there will be no requirement to file the income tax returns by persons having income up to Rs 5 lakh,” says Gopal Bohra, Partner, N.A Shah Associates LLP.
For AY 2018-19, approximately 6.05 crore individuals have filed their tax return, out of which approximately 4.58 crore individuals have filed return of income declaring income up to Rs 5 lakh. Thus, the increase in the basic exemption limit from Rs 2.50 lakh to Rs 5 lakh will result into reduction in individual tax filer by approximately 75%, which may not go with the aim of Narendra Modi’s government of ‘lower income tax rates and more taxpayers’.
“The government, thus, may consider widening the 10% tax slab up to Rs 10 lakh, 20% tax slab up to Rs 15 lakh and 30% tax slab beyond Rs 15 lakh. This will increase the disposable income in the hands of individual taxpayer and at the same time they will remain in the tax base and continue to file their income tax return,” says Bohra.
Some other tax experts also believe that increasing the threshold limit from Rs 2.5 lakh to Rs 5 lakh seems highly unlikely in the current scenario.
“The target for Direct Tax Collections has been set very high for this year and it is highly unlikely that the Income Tax Department will be able to achieve this target. Considering the fact that the collections will fall short of the expectations, it is highly unlikely that the government will be able to increase the threshold limit from Rs 2.5 lakh to Rs 5 lakh,” says CA Karan Batra, Founder & CEO of CharteredClub.com .
Thus, while some small changes can be expected on the income tax front in the upcoming Union Budget 2019 or salaried persons may be given some relief in one form or the other, tax experts are not hoping for an increase in the basic exemption limit for individual taxpayers.