Tuesday, February 7, 2023
HomeEconomyModi's new govt plans to cut income tax rates, widen tax base

Modi’s new govt plans to cut income tax rates, widen tax base

Direct tax reform to take centre stage in Modi's second term. Taxation process to be eased for honest taxpayers.

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The National Democratic Alliance (NDA) government, in its second term, plans to introduce transformational changes in the direct tax regime by pruning a tax rate that is as high as 30%, widening the tax base and making it easier for honest individuals and corporate entities to comply with tax laws.

At the same time, wilful tax evaders and money launderers will not be spared, government officials aware of the plan said.

In its first term, the NDA government, led by Narendra Modi, introduced the Goods and Services Tax (GST) on July 1, 2017, to revamp the direct tax regime. Although it was criticised for its shoddy implementation at the start, GST subsumed a range of national, state- and local-level taxes and ushered in a uniform tax regime in the country.

Now, the finance ministry has been asked to speed up the framing of the Direct Tax Code (DTC) and incentivise individuals and companies to voluntarily file their tax returns, as the government seeks to widen the direct tax base, two officials with direct knowledge of the matter said on condition of anonymity.
“We are expecting the task force [on DTC] to definitely submit its report by July 31,” one of the officials said, adding that the task force was “reviewing existing income-tax laws and drafting a new direct tax law in consonance with economic needs of the country”.

The government formed the task force on November 22, 2017, after PM Modi emphasised the need to redraft the archaic Income-Tax Act, 1961, at the Rajaswa Gyan Sangam, a conference of tax administrators, held on September 1-2, 2017. The task force had been initially expected to submit its report by May 2018, but ran into delays.

Lower tax rates, the government hopes, will act as an incentive for taxpayers to comply with the direct tax regime, file returns and pay tax, augmenting its revenue. Direct tax collections amounted to Rs 11.18 lakh crore in the financial year ended March 31, falling short of the target of Rs 12 lakh crore.

India’s top tax rate, applicable on incomes above Rs 10 lakh, is 30% exclusive of cesses and surcharges. The direct taxpayer base in a country of 1.3 billion people was as low as 74,127,250 in the assessment year 2017-18.

Lowering the tax rate will also leave more disposable income in the hands of consumers, spurring them to spend more, in the process accelerating faltering economic growth. According to the latest official data, economy growth slowed to a nearly five-year low of 5.8% in the January-March quarter, pulling down full-year growth to 6.8%.

According to experts, the budget, which will be presented in July, is likely to address key concerns such as sagging economic growth and job creation. According to the latest official data, the unemployment rate was 6.1% in July 2017-June 2018.

“There is indeed an unfinished agenda on the tax front which needs to be finished,” Dinesh Kanabar, chief executive officer of tax firm Dhruva Advisors, said. “On the direct taxes front it is important that policy direction of reduction in the rate of tax to 25% is implemented in its entirety. The new direct taxes code is in the making and I do hope that with appropriate consultation we will bring about simplification on multiple fronts, create a regime where disputes can be settled without having to undergo a litigation process running for over a decade.”
The task force working on the direct tax code could recommend the rationalisation of a few income-tax provisions relating to individual taxpayers to increase transparency and accountability, said Naveen Wadhwa, deputy general manager at Taxmann.

“If this report is submitted on time, we may expect that some of the recommendations of the task forces are implemented through the amendments in the existing Income-Tax Act,” he said.

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Also read: PM Modi cannot continue to neglect macro-economic issues


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  1. Pension and interest earned from the Fixed Deposits by the Sr.Citizen should be tax free. This will give relief to Sr. Citizen.

  2. Pension needs to be tax free.
    Interest earned by the Senior Citizen should be tax free.
    This will help the Sr. Citizen to maintain a standard of living whose sole earning source is interest from FD and Pension.

  3. Income tax is not imposed on those who are not in that bracket. Most of them are evasing. You cannot torture the one who is promptly paying and submitting return properly. You have to give sufficient time to record all the data accurately and then file. Please don’t see an asseessee as a culprit. Penalties to be waived off. Extend time.

  4. There was a quote once that Income Tax rules and forms should be so simple that one can calculate the tax on the back of a postage stamp.

  5. In paragraph 3 it said “to revamp the direct tax regime”. Clearly you guys are mistaken here as GST is an Indirect Tax not a Direct Tax. Hope you’ll correct it.

  6. At the centre a strong government has come to bridge the demand of sr citizens who make their both ends meet from the small pension and interest on term deposits . We hope the government will now stop deduction of tax from the interest income, because we have already paid tax on it and we have to face double taxation. In these hard days it’s very difficult to remain alive after meeting the medical expenses of self and family. We demand waiver of tax on term deposits of senior citizens.

  7. After implementation of GST there is no need of income.tax. Every person. Already in the GST . The income tax range may be shift to GST . One nation one tax for every individual is a better idea.

  8. Tax payers on high slap should be given some special preference like priority in rail bookings, flight booking, and placed in the front seat in local government functions as this will promote every one to get high slap category, some special cards like

  9. Deeply welcome. Income tax relief to the middle class is an old BJP promise. More than the percentages, this suggests the government is thinking along the right lines. The fisc is a bottomless pit, what in Punjabi is called a khoo. Pour the ocean into it and it will not spill over. At 16% by way of tax to GDP and 8% as the combined fiscal deficit of Centre and states, the government is preempting too high a proportion of national resources.

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