Sanjeev Kumar Patro

News Highlights

  • The Direct Tax Payer's Association has put forth the suggestion of raising the exemption limit to Rs 4 lakh.
  • As per ICICI Direct research, in personal Income Tax, total deductions claimed under various provisions may be restricted to less than Rs 3 lakh,
  • As per the CareEdge Budget expectation survey released today, the Budget will neither bring changes in IT slab rates nor will it raise the IT exemption limit.

Unlike the earlier Union Budgets of 2020-21 and 2021-22, the budget 2022-23 will going to be presented at the Sunset moment of the Third Wave. Union Finance Minister Nirmala Sitharaman will be presenting her 'tablet' prescriptions for healthy growth on February 1.

What will be FM Sitharaman's outlook this year?  The Finance Minister's brand vision is best summed up by her last year's budget quote from 'Thirukkural'. Her budget 'tablet' had three ingredients.

  • "A King/Ruler is the one who creates and acquires wealth, protects and distributes it for common good.''  
  • "Our tax system has to be transparent, efficient and should promote investments and employment in our country.
  • Simultaneously, it should put a minimum burden on our taxpayers.

The Union Budget 2022-23, therefore, will harp on asset and wealth creation (both public and private); frame such policies that will protect the capital of both public and private, and distribute the capital so generated for the common good (welfare economics).

In order to create public assets and wealth, both direct and indirect taxes play a pivotal role. This is where comes the picture of personal taxes. While ease of tax compliances, simplification and digitisation will remain the cornerstones, lighting up the burden on taxpayers is the one where all eyes are riveted on.

As the budget is coming after the disastrous second wave and amidst the ongoing third wave, the salaried class, who are under pandemic pain, fervently looking for a 'painkiller' from the FM Sitharaman's prescription - the IT exemption reliefs. Will she oblige?

The Sky High Expectations  

Here are the results of the survey by a top marketing and research firm.

KPMG: The reputed research firm has put the question, Do you expect the Honourable Finance Minister to enhance the basic exemption limit of Rs 2.5 lakh which has remained unchanged for the last few years?

A whopping 64 percent of respondents have answered YES. The overwhelming response speaks all about the 'high' expectations.

As per the last budgets, the IT exemption limit has been Rs 2.5 lakh for all aged below 60 years, it's Rs 3 lakh for the age-group 60-80 years and Rs 5 lakh for 80 years and above age group.

In its letter to FM Sitharaman, the Direct Tax Payer's Association has put forth the following suggestions.

  • Calling for a review of the personal IT exemption limit and the slab rates, the body has asked for raising the exemption limit to Rs 4 lakh.
  • Besides, it has suggested some tinkering in the slab rates
  • At present, the rate of IT for income over Rs 2.5- 5 lakhs is at 5 percent + 4 percent cess.
  • Between Rs 5 lakh - 10 lakhs, the rate is 20 percent + Rs 12,500 + 4 percent cess.
  • And for the slab of above Rs 10 lakh , the IT rate is 30 percent + Rs 1, 12,500 + 4 percent cess.

However, a new IT regime has been introduced by the FM recently. The slab rates under the new regime follow below.

  • Exemption limit Rs 2.5 lakh
  • 5 percent IT rate on income between Rs 2.5 - 5 lakhs
  • Above Rs.5 lakh - Rs.7.50 lakh ----- 10% of the total income that is more than Rs.5 lakh + Rs.12,500
  • Above Rs.7.50 lakh - Rs.10 lakh ----- 15% of the total income that is more than Rs.7.5 lakh + Rs.37,500
  • Above Rs.10 lakh - Rs.12.50 lakh ----- 20% of the total income that is more than Rs.10 lakh + Rs.75,000
  • Above Rs.12.50 - Rs.15 lakh ------- 25% of the total income that is more than Rs.12.5 lakh + Rs.1,25,000
  • Above Rs.15 lakh ---------- 30% of the total income that is more than Rs.15 lakh + Rs.1,87,500

Under the new IT regime, there are no such deductions as 80C, 80CCD, HRA , Medical and Travel Allowance.

Note: The Union Government has allowed a standard deduction of Rs 50,000 from gross income, which means the taxable income will Rs 3 lakhs (Rs 2.5 lakh exemption limit + Rs 50,000 standard deduction).

What Is Cooking?

As per ICICI Direct research, in personal Income Tax, total deductions claimed under various provisions may be restricted to less than Rs 3 lakh, which may incentivise a shift to the new
regime.

An analysis by Deloitte shows that as per the current income-tax provisions, an individual is required to pay taxes based on the slab rates. The highest slab rate (after including surcharge and cess) for income exceeding Rs 5 crore in India is currently at 42.744 percent.

But the corporate taxes have been reduced over the past few years. The Deloitte experts feel that in order to align the personal taxes with the corporate tax, the budget may go for the alignment of individual tax rates with the corporate tax rate.

Now the highest individual tax rate is 30 percent. Their expectation is the highest rate may be slashed to 25 percent.

The top research firm's suggestion is if the threshold limit for the highest tax rate increased from Rs 10 lakh to Rs 20 lakh, then the proposed highest slab rate (including surcharge and cess) can be reduced to 35.62 percent from 42.744 percent.

And by this way, an alignment can be achieved, observed a Deloitte analysis.

FM Sitharaman's Clues  

Recently, the Union Finance Minister had said that the upcoming Budget will be of a kind never seen before. This highly optimistic talk fuels the experts' hunch of the Budget going to give some tax reliefs on the personal taxes.

Owing to the impact of the pandemic on the salaried class, last year the Union FM had raised the standard deduction to Rs 50,000 from Rs 40,000. Since the raise had been before the disastrous second wave, and in order to give relief to salaried class and pensioners, this Budget may go for an increase in the standard deduction to Rs 80,000.

As per the CareEdge Budget expectation survey released today, the Budget will neither bring changes in IT slab rates nor will it raise the IT exemption limit. (Note: As per the current tax rates, an individual having an income of Rs 5 lakh is not paying any tax.)

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