Given the skewed finances of the central government owing to the COVID-19 pandemic, there is no elbow room at all to provide any relief to the common taxpayer
The government may increase income tax exemption limit under Section 80C to Rs 2 lakh from Rs 1.5 lakh in the upcoming Budget on February 1. Centre will, however, leave the personal income tax slabs untouched.
A source in the Income Tax Department told BusinessToday.In that discussion has taken place on exemption limits, which have remained the same for over four to five years.
"Changes to the exemption limits in the personal income tax have been discussed. Tax exemption limit of Rs 1.5 lakh on savings is likely to be reworked. It may go up to Rs 2 lakh," the source said.
Given the skewed finances of the central government owing to the COVID-19 pandemic, there is no elbow room at all to provide any relief to the common taxpayer, the source said.
Some other exemptions to the personal income tax may also be reworked to give a fillip to household savings as well as the real estate sector.
"The mix of the savings instrument for availing tax benefit on income is also being examined," said the source requesting anonymity.
A significant tax exemption that has come up prominently in the budget deliberations pertains to interest on home loans. In the upcoming budget the government may enhance the deduction limit for both interest and principal paid on home loans.
"Deliberations have taken place on enhancing the current deduction limit of up to Rs 2 lakh for interest on home loan for a self-occupied property and home loan principal repayment limit of Rs 1.5 lakh," said the source without divulging details on the amount by which the limits could be enhanced. Only affordable housing may be eligible for higher deduction on housing loan principal and interest, the source pointed out.
The official also said that health insurance premiums under section 80D may also be reworked so that people could claim higher deduction. The current limit for health insurance premiums is Rs 25,000.
"The move, aimed at incentivising the people to purchase home, will serve as a fillip to the real estate sector. Other exemptions will also be significant in enhancing the household savings and kick-starting consumption in the economy. This is essentially the idea behind the proposed tax tweaks that have been deliberated upon," the source added.
Tax experts BusinessToday.In spoke to also agree that tax exemption tweak is the only option that the government has.
"It is given that the government cannot provide any relaxation to the personal income tax slabs. Also given the fact that the alternative tax system for individuals without exemptions announced in the last budget has completely failed, and the government needs to provide some relief to the taxpayers who suffered a lot due to the pandemic. It is only obvious that the only option left is to alter the exemptions," Ved Jain, former president of the Institute of Chartered Accountants told BusinessToday.In.
Gaurav Mohan, CEO of CA firm AMRG and Associates told BusinessToday.In, "On the exemption front, the government also needs to consider the fact that people have done premature closure of a number of savings instruments due to job loss during the pandemic. The government needs to exempt such premature withdrawals from charges and penalty given the unprecedented situation."
Finance Minister Nirmala Sitharaman projected a gross tax revenue collection worth Rs 24.23 lakh crore for the financial year 2020-21, while presenting the budget last year. The ministry now expects that the shortfall in the FY21 gross tax collection to be to the tune of Rs 3 lakh crore.