Post Demonetisation, Govt May Raise Income Tax Exemption Limit

New Delhi: After the economic disruption caused by demonetisation, the government may be looking at raising the threshold for paying income tax so that people have more disposable money in their hands.

CNBC Awaaz reported that the government, in its coming budget, may raise the lowest income tax slab to Rs 4 lakh from the current Rs. 2.5 lakh. The proposed tax slabs, as reported by the channel belonging to Network18, are as follows:

Income of Rs 4 lakh to 10 lakh may be taxed at 10% (the current slab is Rs. 2.5-5 lakh taxed at 10%); Rs 10-15 lakh will be taxed at 15% (currently Rs5-10 lakh is taxed at 20%); Rs 15-20 Lakh to be taxed at 20% (Currently Rs 10 lakh and above is taxed at 30%) and a slab where income above Rs 20 lakh will attract a tax of 30%.

If the tax proposals are indeed implemented in the budget then it will result in greater disposable income with people across all slabs, which in theory, should boost consumption and the economy.

Vikamsey Nilesh Shivji, a chartered accountant based in Mumbai said a cut in tax rates leads to increased compliance. “The loss in government revenue may be compensated by an increase in compliance,” Vikamsey told News18.

Taxes are of two kinds: Direct taxes like Income Tax and Indirect tax like excise, sales tax and service tax.

Sources in the Central Board of Customs and Excise department told News18 that this financial year, indirect taxes have been growing at a faster rate than direct taxes. Till October indirect taxes like central excise, customs and service tax was growing at 24% or so while direct taxes were only increasing at 15%.

After demonetisation indirect tax collections have fallen by 20-30%. How the government intends to make up this shortfall will be revealed only in the budget.