With middle-class apathy on the rise, Finance Minister Arun Jaitley may double the income tax exemption threshold for the salaried from the present Rs 2.5 lakhs to Rs 5 lakhs while also reinstating tax-free status for medical expenses and transport allowance, providing some relief to the section already under strain since demonetisation.
Though propriety demands that not too many policy changes should be made in a vote on account budget, the BJP government is apprehensive of the possibility of a middle-class backlash in the impending general elections.
Hence the plan to streamline tax slabs, which in any case are in consonance with the coming Direct Tax Code, government sources told IANS.
The problem that may manifest itself is that the Union Budget will precede the unveiling of the Direct Tax Code Report on February 28. Tinkering with the tax rates before the release of the report will make it contentious.
The new Direct Tax Code will try to bring more assessees into the tax net, make the system more equitable for different classes of taxpayers, make businesses more competitive by lowering the corporate tax rate and phase out the remaining tax exemptions that lead to litigation. It will also redefine key concepts such as income and scope of taxation
At the moment, income up to Rs 2.5 lakh is exempt from personal income tax. Income between Rs 2.5-5 lakh attracts 5 per cent tax (see table), while that between Rs 5-10 lakh is levied with 20 per cent tax. Income above Rs 10 lakh is taxed at 30 per cent. Rs 5 lakh exemption is only applicable to individuals of over 80 years.
Also, tax free medical expenses up to Rs 15,000 and transport allowance up to Rs 19,200 per annum has been replaced with a Rs 40,000 standard deduction for the salaried class.
With acute farm distress, middle class backlash, massive spike in unemployment data and rising Dalit anger taking its toll on the BJP, it would like to unleash a slew of course correctives. The 10 percent quota for upper castes was part of this process to appease vote banks. But this was an executive decision adopted by parliament, tinkering with the tax structure similarly is a legislative decision.
