NEW DELHI: Imagine if the basic tax exemption is raised to Rs 3 lakh (an additional Rs 50,000 exemption for women and senior citizens), interest on bank deposits is made tax-free and there is no tax on pension if you are over 60 years of age. The BJP had promised all this and more in its 2009 manifesto.

This time around, the party toned down its promises, couching them in vague statements without mentioning specific measures.

tax payersIts 2014 manifesto said that the UPA government has “unleashed tax terrorism” and promised that the BJP would “provide a non-adversarial and conducive tax environment, and rationalise and simplify the tax regime”. Even so, experts believe that the tax outgo of lower- and middle-income earners may come down this year. “Given the current economic situation, there is really not much scope for the government to cut taxes. But the public is reeling under high inflation and some relief might be on cards for lower- and middle-income groups,” says Kuldip Kumar, executive director, PwC India.

“Taxpayers can expect widening of tax slabs, rationalisation of certain exemption limits and raising the deduction limit under Section 80C,” says Divya Baweja, partner, Deloitte Haskins & Sells.

“The tax deduction under Section 80C should be raised to Rs 2 lakh,” says Sudhir Kaushik, CFO and co-founder of e-filing portal He suggests that the additional Rs 1-lakh investment be specifically earmarked for infrastructure bonds and retirement products.

The big challenge before the Narendra Modi government would be to marry these expectations with the reality of the shortfall in tax collections. Though direct tax collections exceeded the revised target of Rs 6,41,835 crore in 2013-14, they were still about Rs 23,000 crore below the original target.

If the government wants to cut taxes or enhance deductions this year, it will have to balance the foregone tax by boosting collections and ensuring stricter compliance.
For taxpayers, this means greater scrutiny of their income. The CBDT has already sounded a warning by putting salary slips under the scanner. In October 2013, salaried taxpayers who sought tax exemption for HRA of more than Rs 8,333 a month were asked to mention the PAN of their landlord.

The new tax forms notified last month seek a break-up of the exempted income received and capital gains earned by an individual.

Mercifully, most tax experts don’t think the government will widen the service tax net or increase the rate.

“There is no scope for further increasing the tax burden on services as they are already struggling with a high tax burden and the impact of the economic slowdown,” says DK Srivastava, chief policy advisor, Ernst and Young. Others point out that widening the service tax or increasing its rate will have a cascading effect on inflation. “Any increase in indirect taxes will hit the rich and poor with equal force,” says Kuldip Kumar of PwC.