As the Union budget will be getting revealed within the next few days, the expectation of the market gazers has exacerbated. As the general public awaits to know of the decrease in the prices of daily-use items, it is being guessed that there is little chance of a concession in the taxes this new year.
What is being expected positively will be a relief in income tax limits. It could be from Rs 50,000-80,000. If it happens, the existing limit of Rs 2.50 lakh will go up to a sum of Rs 5 lakh. There are numerous probabilities on the income tax front as the union government looks to improve personal demand. Several requests have also been rendered for increasing the basic exemption limit to a sum of Rs 5 lakh and the tax deduction barrier for healthcare may also raise in the trace of Covid-19.
One may hasten to ask: what is the relationship between income tax and inflation? The answer is not as easy as you might deduce. It depends on various related factors. The general belief is that if there is an increase in income tax rates, this will not straightaway cause inflation in the market.
Yet, there is another angular angle too. If anything, it will lead to a lower rate of inflation. Higher income tax will reduce disposable income and therefore spending. This will cause a fall in aggregate demand, so think ebullient economists as the fresh budget is to be tabled in the Parliament on February 1.
However, there is also an indication of the scant scope of tax concession in the coming budget, owing to the choice of the most optimal route to support growth. It is being seen in the light of relaxing current fiscal deficit likely to dangle between 6.5-7 per cent, while maintaining a close eye on the projection of debt-GDP ratio.
It will be worthwhile to mention here Morarji Desai, who presented as many as 10 union budget, Yashwant Sinha, YB Chavan and CD Deshmukh, seven each, and TT Krishnamachari and Manmohan Singh, who presented six each. Present finance minister Nirmala Sitharaman is going to present her third budget on Monday. In her previous two budgets, the market fell badly as figured at 1.1% in 2019 and 2.5% in 2020. This time also, the market has come off more than 5% from the highs as has been reported.