Budget 2019: What Individual Taxpayers Want
After a surprise relief to taxpayers in the lowest income tax slab ahead of the general elections, experts say the government has little room to offer any major relief to the middle class in Union Budget 2019 this week.
People with an annual income of up to Rs 5 lakh were given a rebate of up to Rs 12,500 in the interim budget in February. That effectively meant they would pay no tax. Piyush Goyal, then finance minister, also increased the standard deduction for all taxpayers by Rs 10,000 to Rs 50,000. So, all taxpayers can avail deductions of up to Rs 4.5 lakh, theoretically.
Still, BloombergQuint’s analysis of the changes implemented by the Narendra Modi government in its first term revealed that those earning between Rs 5 lakh and Rs 50 lakh have been largely overlooked.
Moreover, the Rs 12,500 benefit provided in the interim budget didn’t apply to those earning even one rupee more than Rs 5 lakh a year. So, income between Rs 5 lakh and Rs 10 lakh is taxed at 20 percent, and above Rs 10 lakh at 30 percent.
Bloomberg reported earlier this month that the government is considering increasing the individual income tax threshold to Rs 3 lakh from the current Rs 2.5 lakh in its first full budget of the second term. But that would save taxpayers only Rs 2,500 a year.
There is a very limited room for Finance Minister Nirmala Sitharaman to give huge tax sops to the middle class, considering the requirement to keep fiscal deficit under control, according to Gajendra Kothari, managing director and chief executive officer at Etica Wealth Management Pvt. Ltd. But there are certain steps that can be taken with minimal impact on the government’s finances, he said, adding that these would spur consumption and household savings.
- Lowering the tax rate applicable on the second income tax slab—Rs 5 lakh to Rs 10 lakh—from 20 percent to 15 percent.
- Deductions available under Section 80C should be increased to Rs 2 lakh from the current Rs 1.5 lakh.
Gautam Kalia, head of investment solutions at Sharekhan by BNP, agreed. “Indians love to save, give them more reason to do so.”
While the list of options such as equity-linked saving schemes and contribution to provident fund is comprehensive enough, the total amount permissible as deduction under Section 80C should be increased to encourage better tax financial planning for individual taxpayers, he said.
Kalia also suggested a complete overhaul of the income tax slabs.
“Salaried individuals are among the largest group of people paying tax. The government must focus on helping improve the quality of life of these individuals,” he said. “The reality of people living in the metros specially is that while their incomes have increased over the last few years, their disposable income and quality of life remains the same. This is primarily due to inflation and overcrowding.”