Experts say Finance Minister may increase income-tax exemption limit by Rs 50,000 to Rs 3 lakh
Every year when the Union finance minister presents the Budget speech, the 'aam aadmi' looks up to him, hoping his tax liabilities will be reduced. Even this year when Arun Jaitley opens his briefcase which carries the Budget documents, he will be expected to dole out some goodies.
Well, the specualtion is that the common man may not be disappointed at all as the plan is to reduce tax burden on the middle and lower classes. In the finance minister's own words, "he is not in favor of taxing the low-income groups".
Budget 2015: Complete Coverage
On Feburary 28, the finance minister may announce a raise in the income tax exemption limit by around Rs 50,000, taking it to Rs 300,000.
According to experts, this tax sop for the middle class will cost the excheqer close to Rs 17,000 crore (Rs 170 billion).
"One way of creating an impact for all tax payers is to tweak the slab rates. Increasing the tax exemption limit to Rs 300,000 was the recommendation of the standing committee on finance, so increasing the tax exemption limit by Rs 50,000 would be in-line with that recommendation," said Vineet Agarwal, Partner, KPMG.
The Union Minister in his maiden budget had increased the exemption limit by Rs 50,000 taking the total limit to Rs 250,000.
Another area of focus is on the medical reimbursement. Currently, expenditure incurred by an employee is exempt from taxation upto the extent of Rs 15,000 per annum. The industry has urged the finance minister to revise it to Rs 50,000.
Budget 2015: Complete Coverage
Based on the suggestions of the industry the ministry carried out an analysis for the feasibility of the said move. This roughly translates into a revenue hit of close to Rs 10,000 crore (Rs 100 billion), as per sources.
"Fifteen thousand of expenses incurred on medical reasons was set back in 1998, and till now the amount has not been changed. The Direct Tax Code has made the recommended increasing the limit to Rs 50,000 so implementing that would a prudent measure on the part of the finance minister," said Agarwal.
The finance minister would revise the medical reimbursement income-tax exemption limit but up to what extent is something we need to wait for the announcement in the Budget speech.
Currently, if you invest in a fixed deposit you are required to lock it in for five years for tax exemption. The finance minister may revise the lock-in downwards to three years for tax exemption benefit.
This proposal was submitted by the banking lobby which has sought for parity between debt funds and fixed deposits. Currently only a five year FD gets a benefit under section 80C whereas a 36 month debt fund gets the tax benefit.
