The government has a Diwali gift for us all. A cut in personal income tax rate is what appears to be on the cards, according to a Hindustan Times report. It is said that the government is considering rationalising personal income tax rates. This is being done to increase disposable incomes, especially among the middle class, and drive consumption, resulting in growth.
The move comes after the government slashed corporate tax rates to boost investment and sentiment. The government slashed the income tax rate for companies by almost 10 percentage points to 25.17 per cent and offered a lower rate to 17.01 per cent for new manufacturing firms to boost economic growth rate from a six-year low by incentivising investments to help create jobs.
Personal income tax rate cut: What the government is planning to do
Government officials are working to simplify archaic income-tax laws and rationalising tax rates in accordance with the recommendations made by the Task Force on the Direct Tax Code. The report said the move is aimed at enhancing compliance, expanding the tax base and make lives of the taxpayer easy.
The government is considering various scenarios depending on the impact the decision could have on revenue. The report quoted an official as saying: "The idea is to give at least a five per centage point benefit to every taxpayer."
One of the options is to introduce a 10 per cent slab for people having taxable income between Rs 5 lakh and Rs 10 lakh. At present, this slab attracts a 20 per cent tax rate. Other options include removing cess, surcharge and several tax exemptions and reduce tax rate of the highest slab from 30% to 25%.
Currently, taxable income between Rs 3 lakh and Rs 5 lakh attracts a 5% rate. The second slab (Rs 5-10 lakh taxable income) has a 20% tax levied on it, while it is 30% tax on income above Rs 10 lakh. Income up to Rs 2.5 lakh is tax-free.