Income Tax Cut Hopes Rise. How Much Can Be Saved If Exemption Limit Is Doubled

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Income Tax Cut Hopes Rise. How Much Can Be Saved If Exemption Limit Is Doubled

Ahead of the Budget presentation on February 1, expectations are rising that Finance Minister Arun Jaitley could offer more income tax sops than he has in the past. Rajesh Baheti, MD of Crosseas Capital Services, says Mr Jaitley is unlikely to tinker much with the indirect taxes (excise duties) in the Budget as government has set July 1 date for rolling out the goods and services tax (GST) regime. So individual income tax and corporate tax would be the focus of this year's Budget, he added.

Besides that Budget 2017 has a lot of expectations riding on it, especially post-demonetisation. "The common man is expecting some relief in the form of reduced tax rates or enhanced tax slabs to soothe the discomfort caused by the demonetisation drive," said Amarpal Chadha, a tax partner at EY.

Shuddhasattwa Ghosh, a tax partner at EY, says though the income tax rates may not be tinkered with, some realignment of slab rates is expected. 



Mr Ghosh says the threshold limit could be raised to Rs. 5 lakh. According to the current income tax laws, for individuals below 60 years of age, income up to Rs. 2.5 lakh is not taxed. Income between Rs. 2.5 lakh and Rs. 5 lakh is taxed at 10 cent; between Rs. 5 lakh and Rs. 10 lakh at 20 per cent, and beyond Rs. 10 lakh at 30 per cent. 

Mr Ghosh of EY says the new 10 per cent tax bracket could be for income between Rs. 5 lakh and Rs. 7.5 lakh and the 20 per cent for between 7.5 lakh and Rs. 10 lakh. The 30 per cent tax bracket could remain unchanged for income above Rs. 10 lakh, he said. 

Assuming a person with total income of Rs. 8 lakh and saves Rs. 1.5 lakh under Section 80C and gets deduction of Rs. 50,000 towards house rent, he/she has to pay income tax of Rs. 45,000 (excluding cess.) 

If the exemption limit is raised to Rs. 5 lakh and income between Rs. 5 lakh and 7.5 lakh is taxed at 10 per cent, the same person will have to pay a tax of Rs. 10,000 (excluding cess), assuming that he/she saves Rs. 1.5 lakh under Section 80C and gets deduction of Rs. 50,000 towards house rent. 

Similarly, if a person earns Rs. 15 lakh and saves Rs. 1.5 lakh under Section 80C and gets a tax deduction of Rs. 1 lakh on rent paid, the tax liability comes to Rs. 2 lakh. If the exemption limit is hiked to Rs. 5 lakh and income between Rs. 5 lakh and Rs. 7.5 lakh is taxed at 10 per cent and Rs. 7.5 lakh to Rs. 10 lakh is taxed at 20 per cent and beyond Rs. 10 lakh at 30 per cent, the tax liability of the will be come down to Rs. 1.5 lakh. 

Home Loan 

IDFC Chief Economist Indranil Pan said that the government could also provide higher income tax exemptions on housing loans to boost the property sector which has suffered in the wake of demonetisation. 

A report from real estate consultant Knight Frank said property sales volume in top cities falling to a 6-year low in the wake of demonetisation. 

Corporate Tax Expectations 

Mr Jaitley in his second Budget speech in February 2015 had announced reducing the corporate tax rate from 30 per cent to 25 per cent over a period of time. In a survey by Deloitte Touche Tohmatsu India LLP, commissioned on budget expectations of India Inc, 53 per cent of the respondents expect the corporate tax rate to be reduced this time. 

Rahul Garg of PwC believes that the government could reduce corporate tax rate by 1 percentage point to 29 per cent in this Budget.

Ahead of the Budget presentation on February 1, expectations are rising that Finance Minister Arun Jaitley could offer more income tax sops than he has in the past. Rajesh Baheti, MD of Crosseas Capital Services, says Mr Jaitley is unlikely to tinker much with the indirect taxes (excise duties) in the Budget as government has set July 1 date for rolling out the goods and services tax (GST) regime. So individual income tax and corporate tax would be the focus of this year's Budget, he added.

Besides that Budget 2017 has a lot of expectations riding on it, especially post-demonetisation. "The common man is expecting some relief in the form of reduced tax rates or enhanced tax slabs to soothe the discomfort caused by the demonetisation drive," said Amarpal Chadha, a tax partner at EY.

Shuddhasattwa Ghosh, a tax partner at EY, says though the income tax rates may not be tinkered with, some realignment of slab rates is expected. 



Mr Ghosh says the threshold limit could be raised to Rs. 5 lakh. According to the current income tax laws, for individuals below 60 years of age, income up to Rs. 2.5 lakh is not taxed. Income between Rs. 2.5 lakh and Rs. 5 lakh is taxed at 10 cent; between Rs. 5 lakh and Rs. 10 lakh at 20 per cent, and beyond Rs. 10 lakh at 30 per cent. 

Mr Ghosh of EY says the new 10 per cent tax bracket could be for income between Rs. 5 lakh and Rs. 7.5 lakh and the 20 per cent for between 7.5 lakh and Rs. 10 lakh. The 30 per cent tax bracket could remain unchanged for income above Rs. 10 lakh, he said. 

Assuming a person with total income of Rs. 8 lakh and saves Rs. 1.5 lakh under Section 80C and gets deduction of Rs. 50,000 towards house rent, he/she has to pay income tax of Rs. 45,000 (excluding cess.) 

If the exemption limit is raised to Rs. 5 lakh and income between Rs. 5 lakh and 7.5 lakh is taxed at 10 per cent, the same person will have to pay a tax of Rs. 10,000 (excluding cess), assuming that he/she saves Rs. 1.5 lakh under Section 80C and gets deduction of Rs. 50,000 towards house rent. 

Similarly, if a person earns Rs. 15 lakh and saves Rs. 1.5 lakh under Section 80C and gets a tax deduction of Rs. 1 lakh on rent paid, the tax liability comes to Rs. 2 lakh. If the exemption limit is hiked to Rs. 5 lakh and income between Rs. 5 lakh and Rs. 7.5 lakh is taxed at 10 per cent and Rs. 7.5 lakh to Rs. 10 lakh is taxed at 20 per cent and beyond Rs. 10 lakh at 30 per cent, the tax liability of the will be come down to Rs. 1.5 lakh. 

Home Loan 

IDFC Chief Economist Indranil Pan said that the government could also provide higher income tax exemptions on housing loans to boost the property sector which has suffered in the wake of demonetisation. 

A report from real estate consultant Knight Frank said property sales volume in top cities falling to a 6-year low in the wake of demonetisation. 

Corporate Tax Expectations 

Mr Jaitley in his second Budget speech in February 2015 had announced reducing the corporate tax rate from 30 per cent to 25 per cent over a period of time. In a survey by Deloitte Touche Tohmatsu India LLP, commissioned on budget expectations of India Inc, 53 per cent of the respondents expect the corporate tax rate to be reduced this time. 

Rahul Garg of PwC believes that the government could reduce corporate tax rate by 1 percentage point to 29 per cent in this Budget.



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