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Rise In Take-Home Pay And Lower Corporate Tax Rate Likely In The First Budget After Demonetisation. 

It seems the government is working towards a host of direct tax incentives, to be announced in the upcoming Union Budget, buoyed by increased tax collections due to demonetisation. This could mean lower personal income tax rates and lower corporate tax rates too. 

There are multiple proposals on the table for  reviving demand and stimulating private investment to boost overall growth. 


The measures that can be taken into consideration are revamping of theincome-tax framework for individuals to increase their take home pay, thus persuading them to start buying more goods and services, and a reduction in the corporate tax rate to encourage companies to invest. 

 The government is keen on enhancing the purchasing power of people to boost demand. 

The Central Statistics Office (CSO) has estimated that the economy will grow 7.1% in the current financial year, slower than 7.6% last year, but this forecast didn't include the impact of demonetisation.


However, private estimates suggest the economy could do worse and may need a stimulus.

The emphasis is therefore likely to be in favour of widening tax brackets and enhancing deductions such as those on housing loans, something that would also perk up the flagging real estate sector. 

The lowest slab of 10% is on an annual income of Rs 2.5 lakh to Rs 5 lakh and 20% from Rs 5 lakh to Rs 10 lakh. Above Rs 10 lakh, the tax is levied at 30%. 

Policymakers contend that while the government intensifies efforts to bring more people within the tax net, it needs to reward those who have been paying taxes diligently. Only 3.91 crore people filed tax returns in FY15, out of which 1.83 crore paid an average tax of Rs 26,000. 

So the Rs 2.5-5 lakh slab could be widened and may be even taxed at a lower rate. The reintroduction of standard deduction, which had been abolished by former finance minister P Chidambaram in the FY06 budget, is also under consideration.