Pre budget: More cash in the hands of middle class to boost consumption

Everybody expects the finance minister to leave the common taxpayer with more disposable income so that consumption increases and therefore production. The average estimate of tax relief in the lower bracket is that the FM may exempt annual incomes below Rs5 lakh from income tax altogether.

When finance minister Arun Jaitley presents the Union Budget on 28 February, he is expected to propose a hike in the limit for exemption for personal income tax.

This will be through allowing higher deductions under various instruments, including medical and housing.

Reports point to a likelihood of an increase in the exemption limit by another Rs1 lakh, which would take the overall personal income tax exemption level to Rs5 lakh.

"While the basic exemption limit for individuals (other than senior citizens) could go up from Rs2.5 lakh to Rs3 lakh, the investment limit for claiming deduction under Section 80C will increase to Rs2 lakh from Rs1.5 lakh at present. The present higher limits for senior citizens would be correspondingly raised. The two measures, together, could result in an annual revenue loss of around Rs30,000 crore to the government and a corresponding boost to household savings," a report in the Financial express said.

Finance minister, in keeping with his promise may also include an assurance in the Budget of inserting a clause in the Income Tax Act that the 2012 retrospective amendments to tax laws won't be invoked for transactions that were consummated prior to the changes.

The two measures, together, could result in an annual revenue loss of around Rs30,000 crore to the government and a corresponding boost to household savings.