Union Budget 2020-21: Govt likely to tweak income tax slabs

Union Budget 2020-21: Govt likely to tweak income tax slabs

   Kautilya Academy    16-01-2020

Union Budget 2020-21: Govt likely to tweak income tax slabs

HIGHLIGHTS


  • Budget may propose 10 percent tax for people with annual income of Rs 2.5 lakh-Rs 10 lakh
  • 35 per cent tax rate may be introduced for those who earn more than Rs 2 crore
  • Specific allowances to salaried persons may be replaced by a higher standard deduction

 

from corporate tax cut to easy money, all measures supposed to revive the economy have exhausted. A structural change in income tax will be the next measure likely to be announced in the upcoming Budget 2020-21 in order to boost consumer demand, a top finance ministry official told India Today.

"People are not spending, and the government is actively considering raising disposable income through personal income tax and demand-driven schemes. After corporate tax reduction, the government is considering implementation of other recommendations of the direct task force, especially related to income tax and housing," the finance ministry official said on condition of anonymity.

The Budget is likely to propose four tax slabs in place of the existing three as suggested by the task force in its report submitted in August 2019. The Budget may propose a 10 percent tax rate for individuals with annual income between Rs 2.5 lakh and Rs 10 lakh; 20 percent tax for income between Rs 10 lakh and Rs 20 lakh; and 30 percent tax for income between 20 lakh and Rs 2 crore.

If the government follows the recommendations of the task force, then a 35 percent tax rate may be introduced for those who earn an annual income of more than Rs 2 crore. Full tax rebate for income up to Rs 5 lakh could be enhanced up to Rs 6.5 lakh. The above changes may cost more than Rs 30,000 crore.

The task force was constituted by the government in November 2017 to review the existing Income Tax Act, 1961, and draft a new direct tax law in consonance with the economic needs of the country. The task force submitted its report in August last year, but it has not been made public yet.

Specific allowances to salary persons will likely be replaced by a higher standard deduction. Salary persons have been receiving a large number of allowances for several years. Some of them are related to expenditure provided by the employer as tax-free reimbursement to the employee. The current standard deduction from salary income is Rs 50,000, and it could be raised to more than Rs 60,000.

However, the government has limited scope for any bold step as revenue collection is likely to dip this year. The government has reportedly hinted to the 15th Finance Commission that tax revenue growth over the next five years could be much less than what is estimated in the Budget. For the financial year 2020, the total tax revenue target was Rs 25.52 lakh crore but according to provisional data of FY 2019, it could be about Rs 23.61 lakh crore.

GDP growth in the second quarter (Q2) of this fiscal is the lowest since the fourth quarter (Q4) of fiscal 2013. Similarly, private consumption decelerated to 4.1 percent in the first half of this fiscal, nearly halving on-year. The finance ministry official said that in the given scenario, changes in income tax structure will be a more appropriate step compared to any other fiscal measure.

 



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