FM to walk tightrope

Union Budget is likely to provide a ray of hope to low-income salaried class, writes Arun Kumar.

The Union Budget is expected to provide a ray of hope to the lower-income salaried class. Finance Minister P. Chidambaram is likely to wave his magic wand to increase the slab levels to the benefit of people in the lower-income group.

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According to sources, the government may increase the tax slab of 20 per cent to incomes up to Rs 2.5 lakh against the current level of Rs 1.5 lakh.

However, it may also remove certain exemptions as suggested by the Vijay Kelkar-led FRBM task force. The sources said all exemptions will be grandfather for future years, which means that all the exemptions will be clubbed under one heading.

Given the government’s intention to increase the tax base, it is unlikely to move to a two-rate income tax structure as suggested by Kelkar. The sources said it may make an endeavour to keep the income tax exemption limit lower than the Kelkar recommendation and retain a low tax rate of 10 per cent.

The Kelkar committee had suggested a shift to a two-rate structure from the current three-rate structure and reduction in the maximum marginal tax rate to 30 per cent.

The committee had also recommended the removal of standard deduction for salaried taxpayers. The Kelkar task force has also suggested for removal of exemptions under Section 10A, 10B, 80IA and 80IB of the Income Tax Act. The government is planning to withdraw these exemptions and grandfather the same for future years, which means that these exemptions would remain applicable for old companies, but would not be available to new units.