The budget to be presented by finance minister Arun Jaitley on February 1 would be historic in many ways. (Reuters)

Reducing the income tax burden through restructuring of the current tax structure is the best way to curb black money. By not doing this, Prime Minister Narendra Modi and Finance Minister Arun Jaitley may subject Bharatiya Janata Party (BJP) to political losses in the upcoming assembly elections in five states and also in the 2019 Lok Sabha polls.

The budget to be presented by finance minister Arun Jaitley on February 1 would be historic in many ways.

Besides the change in the day of presentation in Parliament from the last week of February to the first day, the railway budget will also be clubbed with the general budget, and it will also have to outline the roadmap for the introduction of the Goods and Services Tax (GST), which has to come into force before September 16 as per the GST constitutional amendment.

But, whether this budget will be historic in true sense for the people or not, will depend on how far Prime Minister Narenndra Modi decides to travel in terms of providing income tax relief to the individual taxpayers and also companies to assuage the demonetisation pains.

Even though the budget is more of a balancing exercise between additional revenue generation measures and expenditure requirements, including those on relief measures – the setting this time demands a different script, thanks to the demonetisation of Rs 500 and Rs 1,000 notes and lack of positive signals for the economy.

The problem with a big-bang restructuring of the income tax structure for reducing the tax burden is that it has to be combined with the removal of exemptions – and this will not be easy, otherwise, FM Jaitley would have started reducing the corporate tax rates last year itself in a big way, which he announced to do in 2015 (from 30% to 25%), over a period of four years.

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There is a need to enhance the limit for imposing the top income tax rate of 30% from Rs 10 lakh, which is quite low. The Direct Taxes Code 2009 proposed Rs 25 lakh for the 30% rate to kick in, but this had to be accompanied by removal of tax deductions.

While Rs 25 lakh limit for 30% rate is still a good bet for tackling the missing middle problem that is visible in people paying less tax in the Rs 10-15 lakh income bracket, it would need to be brought with the scrapping of the tax deductions.

This call will have to be taken, therefore, and it must have been taken by now, at the level of PM Modi. Though he has already crossed the halfway mark of his tenure as Prime Minister, his moves are yet to usher in “acchhe din” promised by him.

This Budget may be seen as a make or break one in that sense and he will do well by making a break from the past and go for the overhauling of the income tax structure completely to make it simple and reasonable – interestingly, that will be the real move to curb black money.

Missing this chance may cost him and Bharatiya Janata Party (BJP) badly not only in the upcoming assembly elections in five states, including Uttar Pradesh and Punjab, but also in the 2019 Lok Sabha polls.