Even
though this is an interim Budget, the NDA government may offer big tax cuts to
woo the middle class before the general elections. as per the Budget
estimates, the top 10 tax incentives will result in a revenue loss of Rs 75,252
crore this year . Will
people’s expectations burn a big hole in the exchequer? Many people want the
basic tax exemption for general taxpayers to be raised to Rs 3 lakh. This would
also require hiking the basic exemption for senior citizens to at least Rs 3.5
lakh. In a way, the basic tax exemption is already Rs 3 lakh for roughly 2.7
crore taxpayers with incomes up to Rs 3.5 lakh by way of the Rs 2,500 rebate
under Sec 87A. Of the 5.7 crore people who file their tax return, almost 1.5
crore have an income of over Rs 3.5 lakh. If their basic exemption is
hiked by Rs 50,000, roughly Rs 75,000 crore will escape the tax net, resulting
in a tax loss of Rs 3,750 crore (5% of the amount). Add the higher exemption to
senior citizens and both measures could jointly cost the exchequer upwards of
Rs 4,000 crore.
* Incomes for previous
years have been deflated using the Cost Inflation Index
** Taxable income is net taxable income after all deductions and exemptions
Then comes the call for a higher limit under Sec 80C, with the argument that the limit was last enhanced five years ago in 2014. This is correct, but don’t forget that the tax saving limit was enhanced in 2016 by Rs 50,000 for NPS contributions under Sec 80CCD(1b). So, the overall limit is already Rs 2 lakh. Hiking the limit by Rs 50,000 would put pressure on revenues. Even if we assume that only one crore taxpayers will avail of the higher limit, a gigantic Rs 50,000 crore will escape the tax net, resulting in a tax loss of Rs 15,000 crore.
Some experts have demanded the removal of tax on dividends. They say that companies pay taxes and pay dividends out of post-tax profits, so it is unfair to tax this dividend again when it reaches the taxpayer. While the government needs to review the dividend distribution tax on mutual funds, doing away with dividend tax on corporates may not be feasible. Tax collections from dividends was Rs 43,410 crore in 2016-17. Of this Rs 41,417 crore came from company dividends and Rs 1,993 crore from mutual fund dividends.
** Taxable income is net taxable income after all deductions and exemptions
Then comes the call for a higher limit under Sec 80C, with the argument that the limit was last enhanced five years ago in 2014. This is correct, but don’t forget that the tax saving limit was enhanced in 2016 by Rs 50,000 for NPS contributions under Sec 80CCD(1b). So, the overall limit is already Rs 2 lakh. Hiking the limit by Rs 50,000 would put pressure on revenues. Even if we assume that only one crore taxpayers will avail of the higher limit, a gigantic Rs 50,000 crore will escape the tax net, resulting in a tax loss of Rs 15,000 crore.
Some experts have demanded the removal of tax on dividends. They say that companies pay taxes and pay dividends out of post-tax profits, so it is unfair to tax this dividend again when it reaches the taxpayer. While the government needs to review the dividend distribution tax on mutual funds, doing away with dividend tax on corporates may not be feasible. Tax collections from dividends was Rs 43,410 crore in 2016-17. Of this Rs 41,417 crore came from company dividends and Rs 1,993 crore from mutual fund dividends.
These 10 tax benefits cost the
exchequer over Rs 75,000 crore in 2017-18
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