Salaried class expects relief in tax slabs

New Delhi, January 30

In the last full Budget before the general elections, salaried class has high expectations of relief in tax slabs and the capital gains regime following months of high inflation that has eroded their income and savings.

Expectations were already high in the last Budget as well after the government had radically slashed the corporate tax slabs just before the pandemic had hit in 2020. The salaried class was instead given the option to choose between the old tax regime of exemptions and standard deductions and a new concessional tax system without any deductions.

Apart from creating confusion, there is some dissonance in the new tax regime that seeks to tax over the basic threshold of Rs 2.5 lakh as compared to exemption for taxes under the old regime up to Rs 7 lakh. On the other hand, the North Block apprehends that those opting for the new scheme might not take life insurance policies that are tax-exempt in the old regime. As far as slabs go, the income tax ranges from 5% to 42.74% as compared to 15% to 22% in most East Asian countries. While the tax rate is comparable or higher in western countries, in return, tax payers also get social security schemes such as medical and pension.

There are also indications that the limit for deductions under Section 80C, currently at Rs 1.5 lakh per year, may be raised to Rs 2 lakh or slightly more.

The changes in the capital gains tax regime are also overdue due to its complicated structure depending on the type of asset and period of holding which determine whether taxing should be under long-term or short-term capital gains.