I-T exemption limit may be hiked

Excerpts from Bazaar on CNBC-TV18 Watch the full show » Nifty BSE | NSE 17/02/12 Are Mutual Funds betting on Nifty?

Expectations are building up with just two days to go. This time there are expectations about changes in personal income tax. That would be good from a sentiment perspective, but how high are the chances that that will happen.

Direct tax collections have been at all-time high levels and they surpassed indirect tax collections for the first time. The biggest growth has come from personal income tax segment, which has grown more than 50%.

HP Ranina, Advocate Supreme Court of India feels that relief is likely only for the lower levels and not the upper middle class. And initial exemption limit on income tax may be hiked to Rs 1.2 lakh from Rs 1.1 lakh.

Excerpts from CNBC-TV18's exclusive interview with HP Ranina:

Q: What is realistic from an individual point of view this Budget?

A: I think the same past strength of tinkering with the Budget proposals. I expect a slight increase in the initial exemption limit from Rs 1,10,000 to maybe Rs 1,25,000 for men, for women from Rs 1,45,000 to Rs 1,60,000 or Rs 1,50,000 and for senior citizens from Rs 1,95,000 to possibly Rs 2,10,000.

So I expect only a change in the exemption limits, the slabs will remain the same. Surcharge on income over Rs 10 lakh will be continued, I don't think there is going to be any reduction. And I do expect that possibly for presenting an image of being growth oriented, the Finance Minister may hike the limit under section 80C for the savings, the current limit of Rs 1,00,000 that gives reduction, may increase to possibly Rs 1,25,000.

Q: You think that he may do nothing with the surcharge for salaries above Rs 10 lakh?

A: No, because I think Rs 10 lakh for him, today is a very high limit and I think he will not allow the Leftists to criticize him for giving some benefits to the rich. So I don't think he is going to do that.

Perhaps on the corporate tax front as he has said, he would like to reward the corporate sector for better performance. As one would know, last year he had said up to Rs 1 crore of taxable profits, there will be no surcharge. possibly that Rs 1 crore limit maybe increased to Rs 1.5 crore or Rs 2 crore. So the smaller companies will not be liable to pay the surcharge.

Q: Are you expecting the quantum of surcharge to be changed from 10% to 5% or any kind of change on the education cess that currently rules?

A: No, not at all. I don't think there will be any change in the rates of corporate surcharge nor in the education cess, because education is giving the wrong signal. He wants to show that he is going to spend more on education, so I don't think that's going to happen. Possibly they may want to bring a in cess for paying farmers debt, I think it will be a very populist Budget, if they do that. 

But there is one more aspect I would like to put on the table and that is this may not be the last Budget before the elections, because Jaswant Singh in January 2004 came up with, what he called a Mini Budget 3 months before the date of the elections, and he made a slew of incentives because as public memory is very short and if you do it now, many things will just fade away. So he may come up with another Mini Budget sometime in November, December in the winter session of parliament this year and introduce some more populist measures. Maybe at that stage he may bring down the rates of tax, reduce the surcharge in order to keep people in the right mood for the elections.

Q: Generally in terms of a tone, how do you think this Budget is going to be for the corporate sector? Do you buy all the arguments about tax collections at an all time high, so some kind of sops coming?

A: To my mind tax collection may not be there, but tax demands have been raised. The corporate sector has been feeling the heat in the last few months in terms of higher demand and that comes from companies that deal with foreign companies where there is an issue of transfer pricing involved and I believe that the transfer pricing department of the Income Tax Department is working overtime to raise huge demands and therefore the demand will be there whether there is a collection.

I am not too sure, that will be known only sometime in May or June of this year. But what will the Finance Minister show on the basis of the demand that is being raised? What is the corporate tax collection which is budgeted for? The final estimate will be known only in the month of May.

Q: Before any Budget, there is always a lot of apprehension about those two things - capital gains and STT. Do you expect him to touch them at all?

A: Not at all. FBT, I think will continue, capital gains tax will also continue, but he may consider giving some definite guidelines. In the past there have been only broad guidelines as to the distinction between capital gains and business income in the case of those who deal in shares on a regular basis. I expect that at least some definite guidelines will now be given.

And if he wants to improve the sentiment of the market, what he needs to do is come out with definite rates so that there is no litigation on this issue. Maybe have a 15% rate of tax for those who deal or trade in shares so that there is no litigation in future. This is what we expect him to do in order to cut short all controversy and litigation.