Finance minister Arun Jaitley will present his first budget on Thursday against the backdrop of mounting expectations from the middle class to ease their tax burden. The BJP has been swept to power on the promise of making life somewhat easier for citizens weighed down by rising prices and high interest rates, which have increased their monthly outgo on mortgages.
Raising the exemption limit from the current level of Rs 1 lakh is seen as a way out for the cash-strapped government to please its support base in its maiden Budget. In any case, the limit was fixed several years ago and there was a suggestion to link it to inflation to ensure that the cap remains relevant.
In addition, there have been discussions around raising the tax-free allowance available to salaries individuals. As TOI has argued in the past, these tax-free allowances have little relevance now. For instance, the tax-free annual medical reimbursement is fixed at Rs 15,000, while transport allowance is pegged at Rs 800 a month.
While there have been suggestions to increase the 80C limit to Rs 5 lakh, government sources have dismissed the demand arguing that there is little headroom given the tight fiscal situation. But a limit of Rs 1.5-2 lakh seems more likely given the enormous expectations around the move. An increase of Rs 1 lakh in the exemption limit results in an annual revenue loss of around Rs 30,000 crore.
Arun Jaitley with PM Narendra Modi
Several regulators, including the Reserve Bank of India, Sebi and IRDA, have argued for higher incentives for savings, especially for long-term instruments such as pension plans and life insurance schemes. The advice is expected to be heeded to by the new finance minister.
READ ALSO: 'Basic tax deduction limit could be increased to Rs 3 lakh'
RBI is also learnt to have pitched for a parity in tax treatment for various instruments, especially fixed deposits which have lost sheen in recent years as some mutual fund debt schemes get preference in tax treatment.
The expectation of a economic recovery in the months ahead is expected to reduce the dent for the exchequer and also free up more money for households to invest in financial instruments as well as real estate to help script a turnaround.
READ ALSO: Finance ministry may ease transfer pricing norms on capital transactions
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