“Proposals to this effect are being examined,” said a government official. “The Direct Tax Task Force provided a template. Some of those suggestions are being looked at.”
A final call will be taken after considering the revenue loss due to these measures and the benefits accruing to the economy balanced against the economic thrust from utilising the amount to directly fund infrastructure or healthcare. The budget will be announced on February 1.
The Direct Tax Task Force set up by the government to review the income tax law had suggested a significant widening of slabs in its August 2019 report.
‘Time to Provide Demand Push’
It had recommended 10% income tax on annual incomes up to ₹10 lakh and 20% for those with incomes at ₹10-20 lakh, 30% for incomes between ₹20 lakh and up to ₹2 crore and a 35% rate for incomes over ₹2 crore. In the current regime, the peak 30% rate applies to all incomes over ₹10 lakh.
The official said there is recognition of the need to provide a stimulus to the economy, which has shown a sharp turnaround, and to return it to the high-growth path.
Individuals have seen incomes shrink in the wake of pandemic and the argument is that any relief through changes in the income tax slabs will not just help cushion the impact but also encourage consumption, which will in turn lift growth.
“It is felt that now may be the time to provide the demand push that was held back to provide immediate relief during the pandemic,” the official said.
The government has so far focussed on supply-side measures to support the Covid-hit economy. Gross domestic product (GDP) is expected to contract 7.7% in the current financial year but bounce back strongly next year.
Targeted relief measures that also encourage spending, such as extending the leave travel concession scheme and making it more attractive for the private sector as well have been discussed. As have enhanced benefits for the housing sector, including tax rebates on interest and principal payments.
Under the current scheme, an individual has to spend three times the amount on goods to claim the leave travel benefit, which is seen as excessive. The home loan rebate is capped at ₹2 lakh for interest payments.
Annual incomes up to ₹2.5 lakh are exempted from tax. Income of ₹2.5-5 lakh faces a rate of 5% and ₹5-10 lakh a rate of 20% while those on ₹10 lakh and above pay 30% tax. Higher incomes also bear additional surcharge. An increase in the exemption limit is also one of the options that has been discussed, along with consumption-linked incentives.
The exemption-free option that was unveiled in the last budget imposes 5% tax on incomes between ₹2.5 lakh and ₹5 lakh, 10% on ₹5-7.5 lakh, and 15% on ₹7.5-10 lakh. Incomes above ₹10 lakh and up to ₹12.5 lakh are taxed at 20% and ₹12.5 lakh to ₹15 lakh at 25%. Income above ₹15 lakh faces a 30% tax. Various exemptions and deductions were to be given up by individuals opting for this, including standard deduction of ₹50,000, house rent allowance exemption for rent paid, deduction for housing loan interest, and deduction of tax-saving investments under Sections 80-C, 80-CCD, 80-D.
Tax experts said the government should look at making the exemption-free regime. “The government may consider allowing taxpayers to opt for the new tax slabs/ tax rates, along with claiming exemptions or deductions like standard deduction from salary, HRA, deduction for home loan interest and investment-linked deductions under Section 80C, 80-CCD or 80-D,” said Rakesh Nangia, chairman, Nangia Andersen India.
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16 Comments on this Story
Bharat36 days ago
INCOME TAX GST TAXES ON PETROLEUM PRODUCTS SURCHARGES = STRANGULATION OF DEMAND
Ramraj V36 days ago
Government can consider taxing only spends instead of salary altogether. There was a proposal to this effect in 2014 prior to change in Government at the Centre. Such a move could ease out salaries and spending.
Shankar Rao M.s36 days ago
Govt must consider tax payers of age 70 years and above also as super seniors and extend tax reliefs so that they enjoy the relief in the period of their survival which is unpredictable.