Will the upcoming February 1 Budget reduce personal income tax rates? While the question is hanging in the air for now, a multitude of indicators are certainly pointing towards it. The specifics, of course, are anybody's guess.
Finance Minister Arun Jaitley hinted at demonetisation-led tax cuts back in December, when he stated that higher tax revenues from unaccounted wealth, as well as a collective migration to digital payments, augur well for personal tax rates. "Once they (payments) are substantially digital, they get caught in tax net. Therefore, the future taxation level would be much higher than what is currently being collected. This would also enable the government at some stage to make taxes more reasonable, which will apply to both direct and indirect taxes," he had said.
Also, worth considering is the positive trend in the collection of both direct and indirect taxes between April and December, which have grown by 12 and 24 per cent over the same period, respectively. The present Government has been vocal about their objective of achieving parity with global tax rates, particularly with respect to other Asian countries. In Malaysia, the highest tax slab of 28 per cent commences at MYR 1.04 crore (roughly INR 1.58 crore). In Indonesia, the 30 per cent bracket becomes applicable at IDR 50 crore (roughly Rs 25 lakhs). In India, incomes above Rs 10 lakh are taxed at 30 per cent.
Tejasvi Mohanram, Founder & CEO, RupeePower shares the view that post de-monetization, we're likely to see a much wider tax net and an increase in tax payers per se. "With the increasing pool, the required taxation rates can be reduced, while meeting the total tax collection requirement to meet expenditures". Mohanram is quick to add that he expects it to be a more "gradual" change and not a radical one.
Let's not forget that politically speaking, the budget presents the government with a perfectly timed opportunity to at least partly assuage the demonetisation-led pain that was borne collectively by the Indian populace not too long ago. Mohanram agrees, opining that "if the PM's speech on the 31st December is to be an indicator of things to come, one can expect more populist measures to boost sentiments".
The government may also consider an increase in consumer spending to be a priority at this stage, increasing the chances of a tax cut - the most obvious means of increasing disposable incomes. From all these angles, demonetisation might just have come in as a blessing in disguise at an opportune time.
While the chance of a monumental shift in tax brackets or rates appears bleak, an upward shift of Rs 50,000 (from Rs 2.5 lakh to Rs 3 lakh) in the minimum tax bracket certainly seems to be on the cards. There's a fair chance that the 20 per cent and 30 per cent tax brackets will be widened, too.
In addition to the above, Budget 2017 could see a standard deduction of Rs 25,000 or so making a comeback. A standard deduction is a fixed deduction from an employee's salary; irrespective of designation, investments made, or expenses incurred. If reintroduced, it'll surely bring some cheer to the salaried class.
Regardless of the final outcome, one can't deny that this is an expectation-laden budget. As the wish lists overflow and hope floats, the common man holds his breath in anticipation. We'll have to wait and watch; hopefully, the surprises will all be positive.
