In the last full budget before the general elections in 2019, it is highly likely that the government will tweak the income tax slabs. The Budget 2018 will have to be both practical and populist at the same time because of the upcoming assembly elections in multiple states and due to the fiscal discipline that the government will have to observe. One of the major expectations from the Budget 2018 is that the basic exemption limit of 2.5 Lakhs will be raised to 3 Lakhs to put extra cash in the pockets of the middle class. Due to demonetization and resulting slowdown in demand due to cash crush experts believe that the said move is almost a done deal. In fact the said move was widely expected in the Budget 2017 itself but then the FM choose to reduce the rate of taxation for income between Rs 2.5 lakh to Rs 5 lakh from then prevalent 10% to 5%. Other than tweak in the income tax slabs an adjustment in the tax rates can also be expected in the Budget 2018. Currently an individual pays tax rates of 5% for income between Rs 2.5 lakh and Rs 5 lakh and 20% for income between Rs 5 lakh to Rs 10 lakh which is the next slab. Thus tax rate of 10% on any income slab is missing which can be introduced accordingly.
Budget 2018 and Corporate Tax
One of the burning questions for corporate India from the Budget 2018 is will the FM keep his promise of further cut in corporate tax rates? Given the current fiscal situation many are not very optimistic but others believe that the FM may spring a surprise. The corporate sector believes that the government both has the political will and desire to reduce corporate tax rate but will the fiscal numbers permit the same is something that will have to be seen. Lowering of the corporate tax rate to 25% from the current 30% and withdrawal of the surcharge is easily the top wish of corporate India from the Budget 2018. A recent survey conducted amongst CFOs showed that a section of them believed that there would be a corporate tax rate cut, another section believed that there won’t be a cut but the surcharge will go and finally the remaining believed that the status quo will be maintained. Experts believe that a cut in corporate tax rate is possible due to the earlier given assurance by the FM and the sharp cut in corporate tax rates in the US but it is highly unlikely that surcharge or the tax dividends will be lowered.