Every year when the Union finance minister presents the Budget speech, the ‘aam aadmi’ looks to him with expectation for reducing their tax liability. It is possible that there would be some moves in this regard in the coming one. The minister has already said he's “not in favour of taxing low income groups”. Read our full coverage on Union Budget He might announce a rise in the income tax exemption limit by around Rs 50,000 a year, taking the total income tax exemption limit to Rs 3 lakh. This sop for the middle class will mean a revenue hit of close to Rs 17,000 crore, sources have said. “One way of creating an impact for all tax payers is to tweak the slab rates. Increasing the tax exemption limit to Rs 3 lakh was the recommendation of Parliament's standing committee on finance. Increasing the tax exemption limit by Rs 50,000 would be in line with that recommendation,” said Vineet Agarwal, partner, KPMG. In his maiden budget, the minister had increased the exemption limit by Rs 50,000, taking the total limit to Rs 2.5 lakh. Another area of focus is medical reimbursement. Currently, expenditure incurred by an employee is exempt from taxation up to Rs 15,000 a year.
Business has urged this be revised to Rs 50,000. The ministry's analysis says the revenue hit would be close to Rs 10,000 crore. “The present limit was set in 1998. The Direct Taxes Code had recommended increasing the limit to Rs 50,000, so implementing that would a prudent measure by the minister,” said Agarwal. If you invest in a fixed deposit, you are required to lock it in for five years for tax exemption. The minister might revise the lock-in downwards to three years for a tax exemption benefit. Bankers had suggested this, for parity between debt funds and FDs. Currently, only a five-year FD gets a benefit under section 80C, whereas a 36-month debt fund does.