Govt unlikely to increase basic income tax exemption limit in Budget: Taxman

Representational image 

New Delhi: Finance Minister Nirmala Sitharaman will present the Union Budget for financial year 2021-22 on February 1.The upcoming Budget is going to be the most difficult one for the FM Sitharaman as she needs to come out with plans to revive the pandemic-hit economy, which is expected to contract 7.7% in the current financial year.

While the governmenr is expected to increase allocation towards public spending and infrastructure it also needs to fund schemes like Atmanirbhar Bharat Abhiyan and Production-Linked Incentive (PLI), which were announced last year as part of its plan to boost the domestic manufacturing sector and reduce dependence on imports.

In order to fund these schemes, the government has to make huge investments at a time when there is already pressure on revenue collection. Although GST collection has comeback to the pre-Covid level, revenue collection from some sectors is yet to revive due to the impact of the pandemic. In this backdrop, research and advisory firm Taxmann does not expect any increase in basic income tax exemption limit and new deduction in income tax. 

“Where on one hand the government has to incur a huge sum to finance these packages, on the other hand, it has suffered a loss of revenue as some industries have been impacted severely by the pandemic. Thus, it is not likely that the government may increase the basic threshold limit or announce any new tax deduction in the upcoming budget,” Taxmann said in its pre-budget recommendations to the government.

At present the basic income tax exemption limit is Rs 2.5 lakh. However, individuals having income up to Rs 5 lakh in a financial year are not required to pay income tax due to the exemptions allowed. In the last Union Budget, FM Sitharaman had introduced a new and simplified personal tax regime consisting of revised income tax slabs and tax rates. Under the new tax structure, people earning Rs 5-7.5 lakh will have to pay just 10%, while those earning up to Rs 5 lakh annually will pay no tax.