New Delhi: In what is seen as a major charm offensive to woo the middle class, the Narendra Modi government is likely to ease the tax burden on the middle class and impose a higher tax on the super rich in its first Budget to be presented by Union finance minister Arun Jaitley next month.
The BJP government is looking to rationalise India's tax regime by considering a restructuring of tax slabs and increasing the income tax exemption limit from the existing Rs 200,000 to more than Rs 300,000. This is ought to benefit India's huge middle class income group which has been hit hard by rising inflation in the past two to three years.
The government is also likely to reframe the income tax slabs, the details of which are being currently examined. At the moment, there are three tax slabs. Those earning less than Rs 2 lakh a year are exempt from paying taxes. Those earning between Rs 2 lakh and Rs 5 lakh annually are taxed at 10 per cent, and those between Rs 5 lakh and Rs 10 lakh are taxed 20 per cent while anybody earning more than Rs 10 lakh pays a tax of 30 per cent.
As per the media reports, the government is also mulling imposing a tax on the super- rich bracket, comprising those earning Rs 10 crore or more of 35 per cent. At the moment, this class pays an effective tax of 33 per cent inclusive of a surcharge that the earlier government had introduced.
In last year's budget ( 2013-14) the then finance minister P Chidambaram, for the first time, introduced an additional surcharge of 10 per cent on “relatively prosperous" persons with a taxable income of more than Rs 1 crore.
According to a report in the Economic Times, the NDA government is also likely to raise the limit of exemption for savings under Section 80 C of the income tax limit to Rs 1.5 lakh from Rs 1 lakh. In addition, the exemption from tax on interest paid for a home loan is likely to be raised to Rs 2 lakh from Rs 1.5 lakh to ease the burden on home buyers.
The 80C tax provision allows individuals to lower their taxable income by that amount by investing in any combination of popular tax-saving instruments such as public provident fund, equity-linked saving-scheme (ELSS) mutual funds or unit-linked insurance plans (ULIPs), among others.
A rejig in income tax slabs is certainly going to give rise to people's disposable income, which in turn will boost consumption along with savings.
Earlier, in his first meeting with financial market intermediaries, the finance minister said the government looks to create positive action through economic reforms in the forthcoming budget to revive investor sentiment and promote growth.