RBI governor bats for raising income tax exemption limit

In what may sound as music to your ears, the Reserve Bank of India (RBI) Governor Raghuram Rajan has called for increasing the tax exemption limit on investments. Presently, the limit on tax exemption is Rs 1.5 lakh per year.

“Remember, the government increased the limit for tax benefit in savings by Rs 50,000 in the last Budget. The question is — is there room for more, primarily because the real tax benefit has fallen over time because the limit was at Rs 1 lakh for a long time? Maybe, what we have to do is increase that,” said Rajan.

Referring to inflation, the RBI governor said, “It is actually easier for us since we are not fighting inflation in an environment where inflation is picking up elsewhere.” Notably, inflation has come down globally.

It is pertinent to mention here that the rate of savings in the country has declined to 30% from a high of 36.9% in FY 2007-08.

Rajan also said that the RBI would prefer fiscal consolidation and a check on mis-targeted subsidies. "A movement of spending from mis-targeted or poorly targeted subsidies towards more capital investment would be a good move," he said. However, he further clarified that the RBI does not oppose subsidies and there are certain weaker sections of the society, which deserve these subsidies.