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Sunday, June 15, 2014

Tax sop for middle class likely in budget

New Delhi: Narendra Modi government wants to please the huge middle-class which rallied behind the BJP and gave it a thumping majority in parliament to go for any structural changes in the country’s economy.

 Accordingly, sources say finance ministry may raise the exemption floor for taxpayers from the current Rs 2 lakh in the Union budget.

It also plans to make saving more attractive by raising deduction levels for investments in insurance and pension schemes.

It is learnt that the finance ministry has also sought a report from central board of direct taxes (CBDT) by June 20 on this issue.

The Modi government feels that the middle-class had not been given a fair deal in the last budget.

At present, there are three tax slabs. Those with an income of less than Rs. 2 lakh a year are exempt from paying taxes. Those earning between Rs. 2 lakh and Rs. 5 lakh annually are taxed at 10%, those between Rs. 5 lakh and Rs. 10 lakh at 20% while anybody earning more than Rs. 10 lakh pays a tax of 30%.

A hike in the deductions allowed on investments is being also considered to give the middle class taxpayer some relief as well as raise the savings rate.

At present, the overall limit for claiming deductions through various savings instruments is Rs 1 lakh apart from Rs 15,000 as health insurance premium and up to Rs 1.5 lakh by way of interest on home loans.

The finance ministry is mulling to raise the current limits of deduction on the home loan principal amount under Section 80C and interest deduction under Section 24 of the income tax act in order to encourage middle-class to get their owns home.

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