Why Modi govt gave income tax rebate rather exemption up to Rs 5 lakh?

Ever since the interim budget 2019 got presented one thing that has been haunting the minds of the public in general is why the then interim Finance Minister Piyush Goyal announced tax rebate for people earning up to Rs 5 lakh rather than giving tax exemption to the tune of such earning groups? The Modi government deliberately did this to give the benefit of the move to the lower middle class, check on the black money and at the same time increase the number of people filing the income tax return, say tax experts.

Speaking on the reason for Modi government not giving tax exemption Jitendra Solanki, a SEBI registered tax and investment expert told Zee Business Online, "This has been made so that the benefit is restricted to the people falling into the lower middle class only. If the tax exemption was announced instead of the tax rebate, the benefit should have reached to the people earning to the tune of Rs 40 lakh or above as well." In current scenario, it is a rebate where a person falling into the lower income level would be able to get this benefit as income above Rs 5 lakh qualifies you to give tax from Rs 2.5 lakh as it was earlier with some benefits mentioned in budget 2018. 

Elaborating on the over the government move to broad base the base of the income tax assessee Balwant Jain, a Mumbai-based tax expert said, "The number of people filing income tax returns is just 6.85 crore against the population of 120 crore. Of this, around 2 crore do not pay any taxes as they have no tax liability but file income tax returns." He said that successive governments have been taking steps to bring more people in the income tax net. 

The old requirement to file the income tax return if you satisfy any of one of the six conditions popularly called “one by six scheme” was one of the measures taken to broad base the network of the taxpayers. Under this scheme, people were required to file ITR if they had a credit card, residential house, motor car, electricity bill running over a certain amount or had undertaken a foreign trip. This rule was withdrawn later as it did not meet its purpose. Now, if the government increased the exemption limit to Rs 5 lakh from Rs 2.5 lakh, a significant number of people would go out of the tax net.

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Jain further said that the move would help the government to keep a check on black money citing, "By ensuring that a maximum number of people file their ITR and declare their source of income, the government is able to keep the black money in check. Since the government cannot go beyond certain years under income tax laws to detect cases of tax evasions, so in case large number of taxpayers go out of income tax network, these people can always claim to build up capital over the years within the raised income tax exemption limit and make circulation of black money rampant."