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Finance Ministry is unlikely to hike income tax exemption limit; Know why

Country’s first woman full-time Finance Minister Nirmala Sitharaman, who will table the Budget on July 5, is unlikely to raise the current basic income tax exemption limit of Rs 2.5 lakh, as the Finance Ministry has already announced a provision whereby individuals earning up to Rs 5 lakh can get full tax rebate under Section 87A.

Those earning Rs 5 lakh per annum will, however, be required to file tax returns even if they have zero tax liability.

The move may come as a bad news for the salaried class and taxpayers in the forthcoming Union Budget 2019 even though there is an expectation among salaried class that the Modi 2.0 government would reward them for voting it to power. But at the same time, officials here have earlier said that increasing the basic exemption limit to Rs 5 lakh will defeat the purpose of the interim budget announcement.

Also read: Budget 2019: 10 must-know facts about history of union budget in India

Another reason why the government is not planning to hike the exemption limit is the fact that increasing the basic exemption limit will not require many people to file income tax and it could result in a dip in tax filing, and would even defeat the purpose of expanding the tax base.

Tax experts have suggested to the Finance Minister in their pre-Budget meeting that raising the basic income tax exemption level would not prove to be a wise move since the Narendra Modi-led government’s focus has been on increasing the country’s taxpayer base.

There is also little possibility that the government would tweak the existing tax slabs in a way that a 10 per cent tax rate applies to those earning up to Rs 10 lakh, instead of the existing 20 per cent. Sources said there could be some additional tax-saving measures for salaried individuals.

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Income tax collections have been lower than expected which also does not support any possibility of raising the exemption limit.

Sources also said that there is no possibility of the threshold for the highest 30 per cent tax rate being raised to apply to incomes above Rs 15 lakh in the upcoming Budget but could happen in future years.

The Finance Ministry is not only looking to increase the taxpayer base but also wants to increase revenue from taxes as it needs to invest aggressively to revive growth and consumption. Therefore, there are minimum chances that the government would tinker with income tax rules in the upcoming budget.

Also read: Budget 2019: What’s in store for the middle-class?

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