Why it is highly possible that tax slabs maybe raised?

The argument is in favour of raising the tax slabs. Presently, you pay 10 per cent tax, if your income is between Rs 2.5 lakhs to Rs 5 lakhs, 20 per cent, if it is between Rs 5-10 lakhs and 30 per cent over Rs 10 lakhs. The argument is that by raising the tax slabs, two thing could happen: it could increase the disposable income of individuals, thus raising demand for most discretionary items, as disposable income increases. The second is that as tax slabs are raised it could lead to better compliance, thus paving the way for more tax collections.

Does the government have the money to do it?

The government's finances are much better than they were in the last many years. The fiscal deficit is slated to be bought down even further and tax collections have been robust. In fact, if the government could ever consider raising tax slabs and reducing tax rates. We widely believe that the government would either give tax breaks through 80C, 80D etc., or hike the tax slabs. Or even both are highly possible. It would be a surprise if the government does not implement anything for individual tax payers in the country in Union Budget 2017-18.

Why they could do it?

Elections to major states are slated in the next few weeks. The government could keep that in mind by including goodies in the Union Budget 2017-18. This could be in the form of increase in tax slabs. The government could also keep in mind the huge suffering and anguish of the people owing to de-monetization. It would hence be prudent to ensure that there is something offered to tax payers, at least when you can do it.

Propelling demand in the country

The government could cut taxes and hike the tax slabs to push demand. Spending has slumped following de-monetization. The only way to get it back on track is by increasing the disposable income of individuals. One way of doing the same would be through the above mentioned means. Whether we find the same being a part of the recommendations of the Union Budget 2017-18 is difficult to say.

Corporate taxes maybe slashed

It is likely that the government could also cut corporate taxes as has been promised earlier. This could also boost profitability of companies and propel the stock market.