New Delhi: India is considering tax relief for individuals as it looks at measures to accelerate consumer demand and boost economic growth, people with direct knowledge of the matter said.
Prime Minister Narendra Modi’s government is mulling a proposal to hike the taxable income limits, especially the 1 million rupee slab, which attracts a 30% rate at present, the people said, asking not to be identified as the discussions are private. The move will be accompanied by scrapping some tax breaks, including the one offered on house rent payments and interest earned on some bank deposits.
The measures may form part of the federal budget to be unveiled in February, the people said. A spokesman for the finance ministry couldn’t be immediately reached for a comment.
If the government tinkers with personal taxes, it will add to the list of measures taken in recent months to boost growth that’s expanding at the slowest pace in nearly six years. Apart from last month’s cut in corporate taxes, the government has also rolled back a levy on foreign funds, injected $10 billion into banks, relaxed foreign direct investment rules, and merged state-run lenders.
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A steep reduction in corporate tax rate to 22% meant companies pay taxes at a lower rate than many individuals who are in the top 30% rate bracket. That’s raised the clamor for a relief in personal income tax rates.
As Finance Minister Nirmala Sitharaman aims to narrow the fiscal deficit to 3.3% of the gross domestic product this year, the government has limited fiscal space for fresh giveaways after the $20 billion corporate tax stimulus. It’s now banking on companies and individuals to boost consumption and add to revenue collections.
Personal tax kicks off on income above 250,000 rupees a year, levied at 5%. Top marginal tax rate in India is 42.74% for income above 50 million rupees. That’s higher than the Asia average of 29.99%, according to data compiled by KPMG. Only about 5% of the population pays taxes and the country’s tax-to-GDP ratio of about 11% ranks lower than the global average. Bloomberg
It is nice to see that the Government is taking pro active steps to boost economy but this may give very negligible results due to only 5 to 6 percent of population is involved in income tax payments. It would be a bold step if the government of the day adopt to a expenditure tax after proper study and implementation.
If government is just thinking to only increase the 30% tax bracket , it wouldn’t work as ordinary tax payers are either below 5% or in 20% bracket. Just increasing the 30% slant would again benefit few high salaried class.
Though it seems to be a sincere step, I doubt if it is going to meet its objective of boosting demand. People spend when they feel secure, and not necessarily when they have extra money in hand. No one is feeling secure in the present atmosphere when even the banks are failing and the government is completely washing its hands off the situation, as in the PMC bank case recently. The TOTAL deposits of ordinary citizens in that bank was only 11 thousand crores. The government’s IMMEDIATE assurance should have been that all depositors will get their ENTIRE money back. This government can suffer a loss of 1.46 lakh crores by way of corporate tax reduction, and for less than one tenth of that amount they have no word of sympathy for the PMC bank depositors! One history guy is running the central bank of India who has quite evidently no knowledge of economics or human psychology. All he knows is how to humour an equally at-sea politician who is running this country, and who knows neither history, economics or human psychology. This is a tough job even for lord Shri Ram to save this country!
Praiseworthy. At a top marginal rate of 20%, most people would wish to comply fully and honestly. A clean, painless way to tackle the menace of black money.