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Tax Sops Coming In Interim Budget!

January 23, 2024 08:41 IST

Illustration: Uttam Ghosh/

To offer additional support at the low end of the income ranges, the Centre will consider a large-scale jump in exemption rates under the old income-tax regime in the vote on account, or interim Budget, according to a senior official in the know.

Those will include an extension of the income tax exemption rates close to Rs 7 lakh and additional measures for women farmers.

The measures, along with announcements to improve the direct tax system, are those which the government feels will not hurt the fiscal deficit numbers now. But they can offer a feel-good sense to citizens.

They will offer a view of what the people can expect once the new government comes in after the general elections due in April-May.

Since 2020-2021, when the finance ministry introduced an optional simplified income tax regime where the tax rates were reduced significantly, the opportunities for exemptions also came down.

In Budget FY24, the ministry added to the incentives to support the new scheme, including a primarily total tax rebate of up to Rs 7 lakh, which was Rs 5 lakh under the old system.

The political calculations are clear. There is already a somewhat related debate between the benefits of the old and the new pension schemes and the impact on the finances of government employees.

The Narendra Modi-led government is aware that the discontent from the wholesale rejig of the income tax system could add to pension issues.

For instance, there are approximately 70 exclusions and deductions available under the older tax system to reduce taxable income. The new system is straightforward, with less demands on taxpayers for maintaining records as well as more surety for the exchequer for less tax evasion.

But the benefits are better at higher income levels.

Conveying the benefits of more equity is a key concern of the Modi government. It will hugely address the questions of inequality at the lower end of the income of the people, an issue which often crops up, said a person aware of the development.

He acknowledged it was a trial balloon, but at the same time not difficult to walk back a bit. Changing of the income tax slabs to extend the benefits from the current range was also considered by the revenue department last year, but was withdrawn.

The prime minister's key policymakers are keen to ensure that other sops do not pepper the vote on account. This can lead to a race with the Opposition parties to make dramatic offers at the general elections.

The other measure that may find a place in the vote on account speech is support for women farmers. This will include tax and non-tax measures to give her financial support and encourage her to modernise agricultural practices.

The government feels that given the increasing swings in climate, it is necessary to ring in measures to improve agricultural productivity. But the response of the states to the challenge has fluctuated.

Again, the signal from the Centre can be very useful in this context. The Modi government is keen to ensure that discussions about the Budget speech, on February 1, are not limited to only management of fiscal deficit.

While it is important, themes to push the people-connect will be important in this context. So, to ensure the vote on account does not remain a drab affair, bereft of themes, in November 2023 each ministry of the central government was asked by the finance ministry to send in three to four policy proposals, which were long-term in nature.

However, they were advised to avoid proposals which could become big cost issues for the government. Those making the cut were also supposed to be those which the new ministers will steer in the new term.

This government is keen to present the full Budget within a month of coming to power. And therefore, it wants most of the homework to be made ready now.

Subhomoy Bhattacharjee