Income Tax Slabs Maybe Hiked In The Union Budget?

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Finance Minister Arun Jaitley is set to present the Union Budget 2017-18 on Feb 1, 2017. Almost everyone is betting on an increase in tax slabs this year. Let us examine some of the reasons why there maybe some reason for Finance Minister to hike the income tax brackets or income tax slabs this year.

The present structure

Currently, you do not pay income tax, if you have an annual income of less than Rs 2.5 lakhs. On the other hand, you pay a tax of 10 per cent, if you have income between Rs 2.5 lakhs to Rs 5 lakhs and 20 per cent for income between Rs 5 and Rs 5 lakhs and 30 per cent over Rs 10 lakhs.

Room to reduces taxes

The reduction of taxes largely depends on the government's ability to manage its fiscal deficit or the budget deficit. The fiscal deficit is expected to fall further as tax collections have been robust. In fact, in Union Budget 2017-18, the Finance Minister is expected to reduce the targeted fiscal deficit even lower. This means he clearly has the room to offer tax benefits and raise the tax slabs. There are many predictions, but in all probability, he might raise the basic exemption limit to Rs 3 or Rs 4 lakhs, instead of the present Rs 2.5 lakhs.

Demonetization effect

The one other reason apart from having the space to raise the basic exemption limit for income tax is to soothe aching nerves after de-monetization. How much it helps in this aspect is difficult to say. But, if you are asked to stick your neck out and predict, what could be the likely benefits for individual tax payers in this Budget - there might be two. One is that the basic exemption limit could be raised or more tax breaks, as an example Sec 80C benefits. Who knows, if the FM is generous, both might be a recommendation in the Union Budget 2017-18.

An eye on assembly elections

There are assembly elections in key states, including Uttar Pradesh, so maybe the government may dole out goodies, though they cannot offer direct benefits to states going to the polls. This would be against the code of conduct. So, they have to offer sops to all and not targeted at a people of the states going to polls.


Why only basic tax limit?

The one reason, for only raising the basic limit for which tax is payable, is because of the thought that those who earn more, should pay more. Keeping that in mind, we may only see the Finance Minister raise the base rate and it would not be a surprise if he does that.

Sec 80C benefits

It is likely that exemption limit on 80C maybe raised or the exemption limits on things like conveyance maybe enhanced. It is also highly possible that both could also be implemented. All in all, expect some sops for individuals in this Union Budget

Read more about: income tax, union budget 2017
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