This year, the finance minister has a tough task at hand in terms of managing the expectations of the common taxpayer in view of the rising inflationary costs of day-to-day goods and services, and at the same time managing the increasing fiscal deficit, which is likely to worsen further due to huge burden of oil and food subsidies.
Nevertheless, to provide some relief to the common taxpayer, it is necessary that more disposable income is left in his or her hands. In this context, a combination of the above three scenarios may work well to support the common taxpayer and also help the government meet its larger socio-development objective and garner resources for long-term infrastructure projects.
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It is important to note that our highest tax rates are now comparable with many countries. However, it is also true that in the context of Indian taxpayers, the basic exemption limit gets exhausted at very low levels of income. Further, in the absence of any specified deductions such as standard deductions, etc., it is necessary that the basic exemption limit is revised periodically, keeping in view the general inflationary levels in the economy. In fact, the basic exemption could be linked to the inflation index in the country.
An increase in the basic exemption limit is likely to provide relief to the lower sections of society while widening the tax space, especially in the 10% and 20% tax brackets, and may help the existing taxpayers to have some more income and use it to meet their consumption requirement, which is being curtailed due to inflationary trends.
Keeping in view the huge requirement of funds for infrastructure development in the country, it is but necessary that the exemption provided for the current fiscal year for investments in long-term infrastructure bonds is extended to next year as well and probably even enhanced to provide a more meaningful exemption in comparison to the current tax year.
The author is an executive director at consultancy KPMG.
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