Budget 2018: Tax relief for salaried may be in offing

Removal of some tax exemptions and revised slabs – which will simplify and increase tax compliance – are two of the most expected changes from the upcoming Budget. Finance Minister Arun Jaitley may revise the range of income tax slab from Rs 5 lakh to Rs 6 lakh in his fifth and final full Budget of the current government on February 1.

In Budget 2018, the government could provide a big relief to the middle class – especially the salaried section – with a new tax slab.

Of the 76 lakh individual assessees who declared income above Rs 5 lakh in last financial year, 56 lakh were from salaried class.

The current three-slab system may see an increase in the upper limit: The first slab's upper limit could be raised from Rs 5 lakh to 6 lakh, taxed at the rate of 5 per cent; followed by Rs 6 to 12 lakh at 20 per cent; and Rs 12 lakh and above is likely to fall in the under 30 per cent tax rate. "Though the government is under financial constraint, it could be an option to cut some tax exemptions and align the slab to simplify the tax law," a Finance Ministry official said.

If this happens, then taxpayers who make more than Rs 6 lakh a year will get a tax benefit of Rs 15,000 annually, according to tax expert Dr Ravi Gupta.

The Finance minister may increase the basic exemption limit from Rs 2,50,000 to Rs 3,00,000. "There will be a tax saving of Rs 2,500 for every individual.

However, a large number of taxpayers will be out of the tax net," Dr Gupta said.

BofA Merrill Lynch Global Research report predicts: "Some sort of personal I-T relief is likely."

However, the research report says the net revenue transfer is likely to be small, and not a major demand stimulant.

In last year's Budget, the Finance Minister changed the first slab of income from Rs. 2.5 lakh to 5 lakh to be taxed at 5 per cent from 10 per cent. This drop translated to a Rs 12,500 tax benefit on income more than Rs 5 lakh.

India's the largest bank, the State Bank of India, demanded that the basic tax exemption limit be raised. "Personal disposable income has increased due to the 7th Pay Commission. We believe there is a need to raise the exemption limit to Rs 3 lakh; through this about 75 lakh taxpayers will be exempted from income tax," said Ecowrap, an SBI research note.