Personal Taxes

CNBC-TV18 Unique: 2021 Finances Unlikely to Decrease Earnings Tax Charge

The upcoming 2021 budget is unlikely to mess around with personal income tax rates, as CNBC-TV18 has learned from sources in the North Bloc, although some of the reliefs could get through with other tax exemption measures.

When Nirmala Sitharaman presents her third budget on February 1, she will face a tougher balancing act than any other finance minister in recent history as she tries to combat the effects of the COVID-19 pandemic that was not all life and livelihoods but also ruined government finances.

Sources told CNBC-TV18 that the Treasury Department was not in favor of changing the panels on personal income tax rates.

Currently, those with annual taxable income up to Rs 2.5 lakh do not have to pay income tax, while those below Rs 5 lakh receive a full discount. Those who earn more are taxed at 10 percent for incomes between Rs 2.5-5 lakh, 20 percent for Rs 5-10 lakh, and 30 percent for beyond.

However, the government is considering providing income tax relief through other measures.

For example, the Treasury Department has proposed greater tax incentives to encourage homebuyers in the affordable housing segment.

Currently, the amount paid as interest on a home loan can be removed when calculating taxable income up to a maximum of Rs 2 lakh. While the bulk of the EMI can be included as part of the wider exception basket under Section 80C, subject to a limit of Rs.1.5 billion.

The Treasury Department is also considering requests to increase the Section 80C exemption limit to Rs 2 lakh from the current Rs 1.5 lakh. Also under consideration is a proposal to increase the health insurance premium deduction limit under Section 80D beyond the current limit of Rs 25,000.

Sources added that discussions on various proposals were still ongoing and no final decision had been made.

Any tax break would put a further strain on tight government finances, but policymakers hope that more money will get into the hands of people through income tax breaks, which would boost consumption and hence government revenue through taxes.

Both industry and experts have stated that the government should put in place further stimulus packages beyond what was announced during the lockdown last year, and that the government should run larger deficits if necessary to keep the economy from its worst year in decades bring back.

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