Income Tax exemption may be raised to Rs 5 lakh by Modi government: Report

The Narendra Modi government is expected to double the income tax exemption limit in the interim Budget, reports have said. This would make income tax-free till Rs 5 lakh per year, up from the present Rs 2.5 lakh exemption. The expected bonanza is being perceived as an effort to shore up the BJP’s support with the middle class just months before the 2019 Lok Sabha election.

The raising of the income tax exemption is expected to be announced by Union Finance Minister when he rises to present the Modi government’s interim Budget, or vote-on-account, on February 1, new agency IANS reported.

It is the practice of the Union government to present a vote-on-account if a general election is around the corner, and leave the final Budget and appropriation process to the next government when it takes charge.

The abolition of the income tax or at least raising exemption slabs significantly has been a key focus on the economic agenda of a number of ideologues and advisors of the BJP. The move could also be seen as a bid by the ruling party to fight back against reports of middle class anger going into the elections.

At present, tax is not applicable on income up to Rs 2.5 lakh per year. Income between Rs 2.5 and Rs 5 lakh is taxed at 5 percent while income between Rs 5 lakh and Rs 10 lakh attracts income tax of 20 percent. All income over Rs 10 lakh is taxed at 30 percent. Individuals over the age of 80 pay tax only on income over Rs 5 lakh per annum.

There is also speculation that the Jaitley may announce a reduction in the top income tax rate from 30 percent to 25 percent.

The government is also in the process of rolling out the new Direct Tax Code, which is an overhaul of the income tax regime that has been in place for over 50 years. The new Direct Tax Code is set to be introduced on February 28.