The government is considering a proposal to extend more incentives to salaried taxpayers in the next budget. The Ministry of Finance may allow individual taxpayers to pay a lower fixed tax rate if they waive all exemptions.
The new structure would be similar to the tax rates proposed by Finance Minister Nirmala Sitharaman at the end of last year, where the basic corporate tax rate was reduced to 22% from 30% for companies that agreed to waive all exemptions and incentives The tax was maintained at an even lower rate of 15% for new manufacturing companies.
“After corporate taxes last year, the government is looking for ways to incentivize individual taxpayers who are an important source of income for the Center. While significant changes in tax slabs could wait for some time, a similar scheme to the one implemented for the corporate sector is also being examined by individuals, “said a source aware of the discussions on the issue in government.
Currently, while the individual income up ₹2.5 lakh per year is tax exempt, a 5% tax is applied for income between ₹2.5 lakh and ₹5 lakh A slab greater than 20% is for income between ₹5 lakh and 10 lakh, while a 30% tax rate is applied for higher income ₹10 lakh In addition, the government also applies a surcharge on slabs to the super rich for higher income ₹50 lakh
The source said that although there is a broad understanding about the implementation of a fixed income tax rate for people, the discussions are still in their amount and how it could fit into a tax structure that has three or four different slabs.
Tax experts who did not want to be named on the issue told IANS that the government could consider a fixed rate somewhere between the income tax rates of 5 and 30%. Ideally, a rate of around 15-18% would be lower than the maximum rate of 30% and the second rate of 20%. In addition, the new lower fixed tax rate may be applicable only for annual income up to ₹50 lakh
Sources said that a higher flat rate is also being sought for the super-rich, but discussions about this have not been conclusive.
At present, an individual can save up to ₹1.5 lakh per year under Section 80C of the Income Tax Law when making investments in insurance plans and some other specific instruments, including the purchase of a pension plan executed under the NPS. An additional self contribution (up to ₹50,000) under section 80CCD (1B) is available as a NPS tax benefit. In addition, there are deductions for contributing to the payment of the health insurance premium and for the installment payment of homes purchased on loans.
While the flat tax rate may be attractive to a certain category of taxpayers who want a greater part of their monthly earnings, experts say the measure could also deter people from increasing their contributions to savings. Family savings in India have been reduced to the level of 17.2% in 2017-18 from 23.6% in 2011-12. Data for fiscal year 19 are not available. Greater internal savings is crucial to mobilize funds for investments in the economy.
This story has been published from a cable agency source without modifications to the text.