Tax expectations from the Union Budget 2019

Given the fact that the basic exemption limit has not been changed in the last five years. The government could consider rationalising the slabs and increase the basic exemption limit. It might woo the middle class by offering  big tax cuts.The taxpayers are expecting the government to increase the exemption limit to Rs 3 lakh. In its Interim Budget, presented in Feb  2019, the government had announced that no tax will be levied on taxable income of Rs 5 lakh or below. However, there was no change in the basic exemption limit, which remained at Rs 2.5 lakh, this benefit was given to the people by giving a rebate under section 87A equal to tax liability if the income level is below Rs  5 lakh. The left-out middle class taxpayers having income more than Rs 5 lakh have to pay income tax on income above Rs 5 lakh but also on the income above Rs 2.5 lakh and upto Rs 5 lakh. Such taxpayers now expect the finance minister to raise the general basic exemption limit so that the benefit could reach to all taxpayers. However, matching these expectations will be a challenge as this might result into a huge revenue loss for the government.

Increase in limit under section 80C:

Section 80C of the income tax Act 1961 helps in saving tax on many investments. The investors expect the government to increase this limit to Rs 2 lakhs.The limit for deduction under section 80C for tax saving investments was last enhanced in 2014 to Rs 1.5 lakh. Raising the limit would encourage investments and thus promote economic growth. However, given the increase in rebate under Section 87A for FY 2019-20 from Rs 2,500 earlier to Rs 12,500 in case of resident individuals whose taxable income does not exceed Rs 5 lakh, further increase in limit under section 80C might result in huge losses to the government.

Removal of Tax on Dividends:

Currently companies pay a dividend distribution at 15% under section 115-O of The Income Tax ACT, 1961. This tax is further taxed in the hands of the receipient at the rate of 10% if the dividend received by such receipient is more than Rs. 10 lakh. Tax on distribution of post tax profits of companies and then further tax in the hands of recipients of dividend over Rs 10 lakh results in double taxation. Therefore, experts have demanded the removal of tax on dividends in the hands of the receipient. As scraping off of dividend tax on corporates may not be feasible for the government.

Removal of Tax on LTCG:

Levy of tax on LTCG in the last budget led to a sluggish growth in the capital market. Experts say that levying of LTCG as well as Security Transaction Tax(STT) only complicates the Tax Structure on taxation of LTCG. Thus the government might do away with LTCG.