Government may raise income tax exemption limit

Government may raise income tax exemption limit

As a big relief to the salaried class taxpayers in the country, the government is reportedly thinking to double the income tax exemption threshold from the present 2.5 Lakh to 5 Lakh.

According to sources, the decision in this regard has been taken by the Finance Ministry with an aim to bring equality between taxpayers after the government’s decision to implement 10 percent reservation in jobs and educational institutions for the economically backward section in the general category.

When implemented, the decision is likely to benefit millions of taxpayers, especially from the middle-class income group.

Currently, income up to Rs 2.5 Lakh is exempt from personal income tax. Income between Rs 2.5-5 Lakh attracts 5 percent tax, while that between Rs 5-10 Lakh is levied with 20 percent tax. Income above Rs 10 Lakh is taxed at 30 percent. Rs 5 Lakh exemption is only applicable to individuals of over 80 years.  

If the Finance Ministry implements the decision to double the income tax exemptions from the current slab of Rs 2.5 Lakh to Rs 5 Lakh, it will help the common man to save more. Additionally, increases in tax limit will kick start savings which will ultimately lead to an increase in investment and liquidity in the system.

While presenting the 2018 Union Budget, Finance Minister Arun Jaitley had announced that there will be no change in personal income tax slab for salaried employees for the current fiscal year.  

However, in some relief for the salaried class, Jaitley announced that the standard deduction of Rs 40,000 has been increased in respect of transport allowance and reimbursement of miscellaneous medical expenses.

Presenting the Union Budget 2018, the Finance Minister said, “Standard deduction shall significantly benefit the pensioners also, who normally do not enjoy any allowance on account of transport and medical expenses. The revenue cost of this decision is approximately Rs 8,000 Crores. The total number of salaried employees and pensioners who will benefit from this decision is around 2.5 Crores.”

The Finance Minister further said, “Apart from reducing paperwork and compliance, this will help middle-class employees even more in terms of reduction in their tax liability.”

In the 2017 Budget, Jaitley had proposed to reduce the existing rate of taxation of those with income between Rs 2.5 Lakh to Rs 5 Lakh from 10 percent to 5 percent.