Budget may see spending stimulus instead of income tax relief.

NEW DELHI: Amid the slowdown, the government may opt for a spending stimulus in the Budget, with more funds allocated to infrastructure development and direct benefit transfer, instead of one through income tax concessions that will benefit a smaller section.

While there is a growing clamour for income tax relief after the government reduced corporation tax, sources said that a change in slabs will impact the exchequer by around Rs 1.3 lakh crore but will benefit around 2.9 crore individuals whose annual taxable income is over Rs 5 lakh.

“It may not be a sufficient amount for people to spend and those with higher income levels will actually end up pocketing the benefit, without any significant increase in consumption,” said a senior government officer.

A better option, a section in the government believes, is to spend the same amount, which will add to the Centre’s fiscal deficit, on creating infrastructure or targeting benefit transfers in the same way as PM-Kisan did.

An official said a large spend on infrastructure will generate demand for steel, cement and other inputs, increasing capacity utilisation and generating jobs. By all accounts, the government is willing to rework fiscal consolidation road map for a transition towards a fiscal deficit of 3% of GDP, something that has been achieved only once during 15 years of the Fiscal Responsibility and Budget Management Act.

Many economists and businessmen have suggested a reduction in personal income tax rates, arguing that it will spur consumption.

“The government has done a superb job on corporation tax and they should now do the same for individuals and limited liability partnership firms too, so that it will help the supply side,” Assocham president Niranjan Hiranandani said, while also suggesting a focus on roads, housing and urban infrastructure to generate jobs.

During pre-Budget consultations with finance minister Nirmala Sitharaman, industry chambers have argued for personal income tax relief by rejigging slabs. Ficci, for instance, has proposed an income tax of 10% from Rs 5 lakh, with a 20% levy on those earning Rs 10-20 lakh, while those with a taxable income of over Rs 20 lakh should be subjected to 30% tax. Besides, it has sought a rollback of the surcharge on those earning over Rs 2 crore.

CII has also demanded a tweak in slabs, which are similar to Ficci’s proposals. The difference is in the higher income groups, with CII proposing 2% levy on those earning between Rs 20 lakh and Rs 2 crore and 35% for those earning over Rs 2 crore.