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Rajan for hike in tax exemption limit, says inflation still a concern

Such a shift in spending will also help in inflation management.

By: ENS Economic Bureau | Mumbai | Published: February 5, 2015 1:02:31 am

Reserve Bank of India Governor Raghuram Rajan on Wednesday called for a hike in the tax exemption limit on financial investments by individuals from Rs 1.5 lakh a year.

While there was a Rs 50,000 increase in the limit in the last budget to Rs 1.5 lakh a year, he said benefits of this instrument have been lost over time as the limit was anchored at Rs 1 lakh for a long time. “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,” Rajan said in a conference call with analysts.

Finance minister Arun Jaitley, who increased the limit to Rs 1.5 lakh in his July 2014 Budget, will be presenting the first full fiscal Budget of the new Government on February 28.

Rajan said also that the RBI would like to see quality fiscal consolidation with a shift to capital spending rather than on mistargeted subsidies.

“A movement of spending from mistargeted or poorly targeted subsidies towards more capital investment would be a good move,” he said, clarifying that the RBI is not against subsidies and there are sections which need to be given the benefits.

Such a shift in spending will also help in inflation management. Rajan said inflation is still a concern for the central bank and the monetary policy continues being “conventional”.

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