New Delhi: The middle class has high expectations from the Union Budget 2020-21 that Finance Minister Nirmala Sitharaman will present on February 1. The finance ministry is actively contemplating restructuring of personal income tax rates in an attempt to put money in the hands of taxpayers and boost consumption.
Earlier, several news reports mentioned that the government constituted Direct Tax Code task force had suggested five tax brackets of 5 per cent, 10 per cent, 20 per cent, 30 per cent and 35 per cent, against the existing structure of 5 per cent, 20 per cent and 30 per cent. The Centre may consider these recommendations in the forthcoming Budget. These changes in the tax system may cost the exchequer more than Rs 30,000 crore.
At present personal income is taxed at 5 per cent for income between Rs 2.5 and Rs 5 lakh, at 20 per cent for income between Rs 5 lakh and Rs 10 lakh, and 30 per cent for an income of over Rs 10 lakh.
Finance Minister Sitharaman is likely to hike limit for deduction under section 80C for tax saving investments as it was last raised in 2014 to Rs 1.5 lakh. North Block officials, on condition of anonymity, say the limit would be raised to at least Rs 2.5 lakh to encourage individual income earners. Plus, the deduction for home loan interest likely to be raised to Rs 3 lakh in an attempt to boost the housing sector and move towards the government’s objective of ‘Housing for all’ by 2022.
However, many economists are of the view that the government has little room to roll out a largesse on the personal tax front due to the tight fiscal situation. Also, it would have to consider whether the tax sops would result in increased demand or the sum gets invested in savings. The Centre has been grappling with the fiscal deficit because of weak revenue collections.