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Budget may offer lower rate to individual taxpayers
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Subhash Narayan | 14 Jan, 2020
The government is considering a proposal to extend further incentives to
salaried taxpayers in the upcoming budget. The Finance Ministry may
allow individual taxpayers to pay a lower flat rate of tax if they
forego all exemptions.
The new structure would be similar to tax
rates proposed by Finance Minister Nirmala Sitharaman late last year
where the base corporate tax rate was reduced to 22 per cent from 30 per
cent for companies that agreed to forgo all exemptions and incentives.
The tax was kept at even lower rate of 15 per cent for new manufacturing
companies.
"After tax sops for corporates last year, the
government is looking at ways to incentivise the individual taxpayers
that form a major source of revenue for the Centre. While major changes
in tax slabs could wait for some time, a scheme similar to the one
implemented for the corporate sector is being examined for individuals
too," said a source privy to discussions on the issue in the government.
At
present while individual income upto Rs 2.5 lakh per annum is exempt
from tax, a 5 per cent tax is levied for income between Rs 2.5 lakh and
Rs 5 lakh. A higher 20 per cent slab is for income between Rs 5 lakh and
10 lakh while a 30 per tax rate is applicable for income above Rs 10
lakh. In addition, the government also levies a surcharge in slabs on
super rich for income above Rs 50 lakh.
The source said that
though there is broad understanding on implementing a flat income tax
rate for individuals, discussions is still going on its quantum and how
it could fit a tax structure that has three to four different slabs.
Tax
experts who did not want to be named on the issue told IANS that the
government could look at a flat rate somewhere in between the 5 and 30
per cent income tax rates. The ideal would be around 15-18 per cent rate
that would be lower than the peak rate of 30 per cent and the second
rate of 20 per cent. Also, the new lower flat rate of tax may be
applicable only for annual income of upto Rs 50 lakh.
Sources
said that a higher flat rate is also being looked at for the super rich
but discussions on this have remained inconclusive.
At present,
an individual can save upto Rs 1.5 lakh per annum under Section 80C of
the Income Tax Act by making investments in insurance plans and few
other specified instruments including buying a pension plan run under
the NPS. An additional self contribution (up to Rs 50,000) under section
80CCD (1B) is available as NPS tax benefit. In addition, there are
deductions for contributing towards paying premium for health insurance
and for paying installment for homes bought on loans.
While the
flat rate of tax may be attractive to a certain category of taxpayers
that want a higher share of their monthly earnings in hand, experts say
the move could also dissuade people from increasing their contributions
towards savings. India's household savings has dropped to 17.2 per cent
level in 2017-18 from 23.6 per cent in 2011-12. Data for FY 19 is not
available. Higher domestic savings is crucial to mobilise funds for
investments in the economy.
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