There may be room to hike the tax exemption limit, says Mr Chadha of EY.
The tax an individual needs to pay every year is calculated on the basis of his/her taxable total income. The tax is calculated according to the income tax slabs announced by the government every year in the Budget.
The annual Union Budget is normally announced at the end of February. But this year, this important event has been preponed and the Union Budget 2017 will be presented by the finance minister in Parliament on February 1, 2017.
If we look in to the recent past, the tax rates have remained untouched barring some minor changes for the past few years.
The wished for changes in the tax slabs in the Union Budget for individuals are as follows:
1) In case of a resident/non-resident (who is less than 60-years-old at any time during the previous year):
| Income (Rupees in lakhs) | Tax rate | Income (Rupees in lakhs) | Tax Rate |
| Current rates | Proposed rates | ||
| Up to 2.5 | Nil | Up to 3 | Nil |
| 2.5 – 5 | 10% | 3 – 7.5 | 10% |
| 5 – 10 | 20% | 7.5 -15 | 20% |
| 10 and above | 30% | 15 and above | 30% |
2) In case of a resident senior citizen (who is 60 years or more but less than 80 years of age at any time during the previous year):
| Income (Rupees in lakhs) | Tax rate | Income (Rupees in lakhs) | Tax rate |
| Current rates | Proposed rates | ||
| Up to 3 | Nil | Up to 5 | Nil |
| 3 – 5 | 10% | 5 – 7.5 | 10% |
| 5 – 10 | 20% | 7.5 – 15 | 20% |
| 10 and above | 30% | 15 and above | 30% |
3) In case of a resident super senior citizen (who is 80-years-old or more at any time during the previous year):
| Income (Rupees in lakhs) | Tax rate | Income (Rupees in lakhs) | Tax rate |
| Current rates | Proposed rates | ||
| Up to 5 | Nil | Up to 7.5 | Nil |
| 5 – 10 | 20% | 7.5 to 15 | 20% |
| 10 and above | 30% | 15 and above | 30% |
4) Considering an individual receives income of Rs 17 lakh during the tax year 2017-18, the below table shows what his estimated tax liability would be (without education cess) and tax savings as per the proposed slab rates:
| Slab rates | For individuals less than 60 years of age | Individuals more than 60 years but less than 80 years of age | Individuals more than 80 years of age |
| @10% | 45,000 | 25,000 | Nil |
| @20% | 1,50,000 | 1,50,000 | 1,50,000 |
| @30% | 60,000 | 60,000 | 60,000 |
| Total tax as per proposed rates | 2,55,000 | 2,35,000 | 2,10,000 |
| Total tax as per current rates | 3,35,000 | 3,30,000 | 3,10,000 |
| Savings | 80,000 | 95,000 | 100,000 |
This could also enable the benefitted taxpayer to have more leverage for investments in insurance, provident funds, mutual funds etc.
The increase in the basic exemption limit would definitely lower the tax collection other things remaining the same. The government has to look at widening the tax base to offset this, which may automatically happen with all the transactions being tracked and the focus on digitisation of the economy and Aadhaar-linked transactions. So, yes, there may be room to hike the tax exemption limit.
In one of the speeches, Finance Minister Arun Jaitley had also said the strategy is to make future transactions substantially digital to reduce dependence on cash. "Once they (black money hoarders) are substantially digital, they will get caught in the tax net," he had said.
Currently, less than three per cent of the population files tax returns in India (as per the data published by the Income Tax Department in April 2016). Though the proposed increase in the basic exemption limit would further reduce the number of people from the tax net but given the measures taken by the government there is also scope for new people to come in.
(Amarpal Chadha is tax partner and India mobility leader at EY)
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