Tax and interest rate reliefs could give a Rs35,000-cr boost to consumption: SBI Research
24 January 2017
Finance minister Arun Jaitley could announce income tax reliefs that could add Rs35,000 crore to disposable incomes of taxpayers helping to boost consumption spending and demand in the economy after the demonetisation drive that sucked out 86 per cent of the currency bills brought down demand and consumption.
Together with interest rate exemptions, this would add significantly to the disposable incomes and boost demand, says SBI Research
The research agency recommends a hike in personal income tax exemption limit.
SBI's research wing also recommends various tax and interest rate exemptions to taxpayers, including an increase in 80C deduction.
Finance minister Arun Jaitley, who will present his fourth budget on 1 February, will be looking mainly at reviving demand in the economy, which has been hit by the demonetisation of high denomination currency notes.
SBI Research's projections include:
- An increase in the personal income tax exemption limit from Rs2.5 lakh to Rs3 lakh per annum;
- An increase in the 80C deduction by Rs50,000 to Rs2 lakh so that the total deduction under Section 80C and Section 80CCD goes up to Rs2.5 lakh'
- Interest rate exemption on housing loan be increased to Rs2.5 lakh for existing home loan payers for new as well as new home buyers from the current level of Rs2 lakh (There are around 7.5 million home loan payers in the country, so the increase in home loan interest deduction from Rs2 lakh to Rs2.5 lakh will benefit them. This will cost the government around Rs7,300 crore).
- To incentivize savings, the government should provide exemption in interest of savings bank deposits. The exemption limit on TDS on interest on term deposits with banks should be raised to Rs20,000 per annum from the current limit of Rs10,000 per annum; and
- The lock-in period for tax-savings bank deposits could be reduced to three years from the current five years, and these deposits brought under EEE (exempt, exempt, exempt) tax regime. This will cost the government Rs3,500 crore, according to SBI.
The total giveaways will cost Rs35,300 crore to the government. However, the tax exemptions could be " more than balanced by (revenue generated from) Income Disclosure Scheme-2 and cancelled note liabilities of RBI", it added.