Doubling of IT exemption limit: Another sixer in store?

Union Law Minister Ravi Shankar Prasad’s cryptic remark – on the day the 10% quota Bill was passed -- that a sixer is hit in slog overs and the nation will get to see many more sixers, seems to be not just bluster or empty rhetoric.

With a few months to go for the 2019 elections, a fatigued BJP dispensation realises that as the incumbent it has to fight off acute farm distress, middle class backlash, massive spike in unemployment data and rising Dalit anger. So, it must unleash a slew of course correctives. The 10 percent quota for upper castes was part of this process to appease vote banks.

And what could better overcome middle class apathy than doubling the income tax exemption threshold for the salaried class from Rs 2.5 lakhs to Rs 5 lakhs?

Though propriety demands that not too many policy changes should be made in a vote on account budget, the BJP government is mulling tinkering with the tax slabs, which in any case has been promised in the upcoming Direct Tax Code.

The problem that may manifest itself is that the Union Budget will precede the unveiling of the Direct Tax Code Report on February 28. Tinkering with the tax rates before the release of the report will make it contentious.

The new Direct Tax Code will try to bring more assessees into the tax net, make the system more equitable for different classes of taxpayers, make businesses more competitive by lowering the corporate tax rate, and phase out the remaining tax exemptions that lead to litigation. It will also redefine key concepts such as income and scope of taxation

At the moment, income up to Rs 2.5 lakh is exempt from personal income tax. Income between Rs 2.5-5 lakh attracts 5 per cent tax, while that between Rs 5-10 lakh is levied 20 per cent tax. Income above Rs 10 lakh is taxed at 30 per cent. Rs 5 lakh exemption is only applicable to individuals of over 80 years.

While presenting his last full-fledged budget in 2018, Finance Minister Arun Jaitley had not altered income tax rates. This, therefore, may be the last chance for the Centre to wean away the middle class political fence sitters.