For an economy still slowing down and unlikely to see brisk hiring or steep payhikes, finance minister Pranab Mukherjee has given salaried bread-winners a reason to cheer.
To begin with, those earning Rs 2 lakh more need not pay any tax at all, raising the exemption limit by Rs 20,000 from Rs 1.80 lakh.
He also proposed to rejig income tax slabs — a move that will leave more money in the hands of the common man.
The new tax slabs could be in line with the Direct Taxes Code (DTC) Bill, which was introduced in Parliament in 2010.
Incomes between Rs 2-5 lakh will be taxed at 10%, income between Rs 5 -10 lakh be taxed at 20% and income above Rs 10 lakh per annum be taxed at 30%.
At present, income between Rs 1.8 lakh and Rs 5 lakh is taxed at 10%, income between Rs 5-8 lakh is taxed at 20%, while annual income of above Rs 8 lakh attracts a tax rate of 30%.
A rejig in tax slabs along with a hike in exemption limits will enhance people's disposable income, which, in turn will boost consumption spending as well as savings.
The government is negotiating a maze of thorny issues ahead of this year's budget amid faltering demand and rising prices that have hit growth in the broader economy, even as prices remain out of control.
“Although DTC will not be effective from this year, I propose to introduce the DTC rates for personal income tax… These changes will provide substantial relief to tax payers,” Mukherjee said in his budget speech.
The parliamentary standing committee on finance has recommended raising the income tax exemption limit to Rs 3 lakh from the existing Rs 1.8 lakh.
The committee headed by BJP leader and former finance minister Yashwant Singh, has also recommended a major rejig in tax slabs.
It has recommended 10% tax for those in the income bracket of Rs 3-10 lakh, 20% for Rs 10-20 lakh and 30% for income beyond Rs 20 lakh.