FM may raise tax exemption cap to Rs. 2 L

Tax experts are hopeful Finance Minister Pranab Mukherjee will increase the income tax exemption limit to Rs. 2 lakh per annum from Rs. 1.6 lakh to bring the rates in line with the Direct Taxes Code (DTC).

"To align the exemption limits under personal income tax with DTC, the Centre is likely to raise the IT exemption limit to 2 lakh," Balbir Singh Mastan, Partner, DSK Legal said.

High inflation, particularly in the food items, also makes a strong case for raising the tax exemption limit, experts argue.

"Taking into account rising inflation, the Government could raise personal I-T exemption limit," tax consultant Subhash Lakhotia said.

He further said that in the wake of the issues related to increasing blackmoney, the government should limit tax rates to upto 20 per cent for individuals and 25 per cent for corporates.

Tax gurus also said the limit for exemption through saving schemes like investments in provident fund and infrastructure bonds, may also be raised from the current Rs. 1.2 lakh.

"The Finance Minister is expected to raise the deduction under 80 C of IT (tax saving) to Rs. 1.5 lakh," Tax consultant Rakesh Gupta said.

In the budget of 2010-11, deduction of an additional amount of Rs. 20,000 was allowed, over and above Rs. one lakh on tax savings, for investment in long-term infrastructure bonds.

Aseem Chawla, Partner in Amarchand & Mangaldas, however, does not expect that Mukherjee would make any changes in rates of Corporate Tax and Minimum Alternate Tax (MAT) but feels excise duty could be raised.

"The Corporate Tax and MAT will remain unchanged. The excise duty will be raised by 2 per cent," Chawla said.

The government is also likely to announce relief in the housing loan segment. They also expect Mukherjee to bring healthcare segment into service tax net.

Meanwhile, economists are expecting the government to further liberalise the foreign direct investment (FDI) regime to contain the dip in FDI inflows.

"Budget may contain steps to improve the FDI situation in the country, by introducing some procedural simplifications as well as opening up the FDI for more sectors," said Crisil's chief economist D K Joshi.

Source: Financial Express