In order to give a boost to the economy reeling under demonetiosation, the government may announce massive exemptions for tax payers in the country.
According to a research report by SBI, the fourth budget is likely to make a sweeping recast of direct taxes to give a boost to the economy following demonetization. “We expect an increase in personal income tax exemption limit from Rs. 2.5 lakh to Rs. 3.0 lakh, increase in section 80C exemption limit from current Rs. 1.5 lakh to Rs. 2 lakh, interest exemption on housing loan from Rs. 2 lakh to Rs. 3 lakh and at least reducing (if not abolishing) the lock in period for bank fixed deposits from 5 years to 3 years for availing tax exemption,” said the report.
Such giveaways will cost Rs. 35,300 crore to the government.
The report, prepared by SBI’s Chief economic advisor & GM, Economic Research Department says, the tax exemptions could be ” more than balanced by (revenue generated from) Income Disclosure Scheme-2 and cancelled note liabilities of RBI”.
According to SBI research, tax collections under the IDS could be around Rs. 50,000 crore and
SBI Research expects tax collection under IDS to be around Rs. 50,000 crore and cancelled liabilities from RBI to be around Rs. 75,000 crore.
The report says “Government(s) have periodically increased the income tax slabs from Rs. 22,000 in 1900-91 to Rs. 2.5 lakh in 2014 -15. Due to 7th pay commission, the personal disposable income has been increased, so we believe there is a need to raise the exemption limit to Rs. 3 lakh. Due to such increase in limit, 75 lakh tax payers will be exempted from income tax.”
The report pegs India’s fiscal deficit target of Rs. 5.75 lakh crores for FY18, at 3.4 per cent of GDP. “We are convinced that the Government must shift its fiscal objective. For the record, FY16 fiscal deficit is now at 4.3 per cent of GDP (3.9 per cent was budgeted),” the report adds.