Reforming individual income tax

the latest tech news, global tech news daily, tech news today, startups, usa tech, asia tech, china tech, eu tech, global tech, in-depth electronics reviews, 24h tech news, 24h tech news, top mobile apps, tech news daily, gaming hardware, big tech news, useful technology tips, expert interviews, reporting on the business of technology, venture capital funding, programing language

Reforming individual income tax
© Provided by The Financial Express Senior citizens will be unable to claim the deduction up to Rs 50,000 for interest income from banks and post-office deposits.

By TV Mohandas Pai & S Krishnan

the latest tech news, global tech news daily, tech news today, startups, usa tech, asia tech, china tech, eu tech, global tech, in-depth electronics reviews, 24h tech news, 24h tech news, top mobile apps, tech news daily, gaming hardware, big tech news, useful technology tips, expert interviews, reporting on the business of technology, venture capital funding, programing language

Income tax law in India has become complicated, thanks to the government providing some or the other tax benefit or concession. It is now time for simplification of individual taxation, as was done in the FY06, when the then FM doubled the basic exemption limit from Rs 50,000 to Rs 1 lakh, and tax at base rate of 10% was chargeable on income between Rs 1 lakh and Rs 1.5 lakh, with only three slabs and a maximum tax rate of 30%. This led to an upsurge in compliance and tax collection in the subsequent years.

No significant rate reduction has been effected in India for the past few years, except for the 5% reduction on the first tax slab in FY18. The maximum individual base tax rate in India is now 30% and the effective tax rate is 42.74% for individuals earning more than Rs 5 crore per annum after considering a surcharge of 37% and health and education cess of 4%. In comparison, the global and Asian average in 2021 are 31.27% and 28.38%, respectively.

Global Tech News Daily

The Finance Act 2020 introduced a new optional tax regime for individuals, and HUF taxpayers are to pay income tax at lower rates from FY21. The new regime with six slabs (from 5% to 30%) has widened the range of taxation, and the highest tax rate of 30% is applied on income above `15 lakh. The prevailing tax regime had three tax slabs, and the highest rate of 30% was applied on income above Rs 10 lakh. However, if individuals and HUF taxpayers choose to file their tax return under the new regime, they will be unable to claim about 70 deductions and tax exemptions such as HRA, LTA, payment of life insurance premia, repayment of the principal amount of a housing loan, payment of interest on a housing loan for a self-occupied property, deduction for health or medical insurance premium, donations under Section 80G, etc. Senior citizens will be unable to claim the deduction up to Rs 50,000 for interest income from banks and post-office deposits.

In the tax filing season for FY21, it appears that not many taxpayers have opted for the new regime. According to Revenue Budget FY22, more than 50% of the individual taxpayers derive their income primarily from salaries. The salaried class would have opted for the old tax regime since they could claim deductions under Section 80C up to a maximum amount of Rs 1.5 lakh per annum towards their contribution to PF and repayment of principal amount of housing loan, if any. In addition, they could claim deduction on interest on housing loans and a standard deduction of Rs 50,000 or the amount of salary, whichever is less. The new tax regime was not attractive for taxpayers claiming deduction of more than Rs 2.5 lakh. While the salaried class claim deductions under Chapter VI-A, profit-linked deductions (i.e., deduction on certain business incomes) are not claimed by them. On the other hand, the group of non-salaried individuals claim both types of deductions. Consequently, the tax impact on salaried individuals is higher than that on non-salaried individuals. The data analysis of the tax returns filed by individuals over 2014-18 (latest such data on CBDT website) corroborates this. The average per capita salary income was Rs 7.94 lakh in FY18 whereas the average per capita income from business or profession of individuals was `5.14 lakh. It is hard to believe that individuals undertaking business have lesser income. The salaried class is subject to tax deduction at source on their entire income even before their salary is paid to them resulting in reporting of appropriate income and tax.

Global Tech News Daily

The middle-class and the salaried class have suffered significantly in the past two years due to loss of jobs, uncertainty in employment, lower income and high expenditure. It is time to provide relief to them through an easy-compliance tax structure that leaves more cash with them. Considering the six-slab tax regime is not attractive to a large number of taxpayers, it may be appropriate for the government to replace the six-slab tax structure with a new three-slab tax structure with no tax deductions and exemptions, except towards insurance premium and donations.

This will simplify the tax structure, make filing easier, provide more cash to taxpayers, help citizens above the age of 55 who may not have the need to claim tax deductions based on investments and incentivise people in business or profession to declare higher income. This will ensure that taxpayers will take economic decisions based on merit and not on any unnecessary investment to claim deductions etc. The probable loss of revenue under this new tax scheme will be made up by removing all of the deductions for this class of taxpayers.

According to Budget FY22, the revenue impact of providing major tax incentives for individuals/HUF taxpayers is Rs 1.06 lakh crore. If we remove the cumulative impact of deductions under sections 80D and 80G (Rs 5,391 crore), the net savings for not providing the major tax incentives would be ~Rs 1.01 lakh crore. The government can make good any loss from the proposed tax scheme from this net savings.

Taxpayers eligible to claim a deduction of more than Rs 3.75 lakh under the old scheme, as compared to the new scheme, may opt to file under the old scheme. The tax impact under the old scheme with all deductions and under the new scheme with deductions only for sections 80D and 80G can be evaluated by the following example. Assuming a taxpayer having an income of Rs 20 lakh has contributed Rs 1.5 lakh towards 80C deductions, paid Rs 3 lakh towards interest on housing loan, Rs 75,000 towards health insurance for self, family and senior citizen parents, Rs 1,25,000 towards Leave Travel Concession and Rs 10,000 towards 80G donation, the tax impact under both the schemes would be summarised in the accompanying graphic.

Assuming the taxpayer has no housing loan, the total deductions under the old scheme would be Rs 4.05 lakh and the taxable income would be Rs 15,95,000. The tax liability would be Rs 3,02,640 under the old scheme, higher than the tax liability of Rs 2.87 lakh under the proposed scheme. The additional deduction under the old scheme is Rs 3.25 lakh (Rs 4.05 lakh less Rs 80,000 under the new scheme) resulting in higher tax liability.

Under the proposed tax scheme, more taxpayers will be left with more cash in hand due to lower tax liability, increasing consumer spending too, a big boon.

Respectively, chairman, Aarin Capital Partners, and tax consultant 

News Related


New York Rangers get another comeback win to force Game 7 vs. Pittsburgh Penguins

PITTSBURGH — How many times can the New York Rangers dig themselves into a hole and climb back out? At least one more, as of Friday night. The Blueshirts came ... Read more »

Wilson, balanced Aces cruise to 96-73 victory over Dream

COLLEGE PARK, Ga. (AP) — A’ja Wilson scored 15 points, Kelsey Plum had 14 points and 11 assists and the Las Vegas Aces rolled to a 96-73 victory over the ... Read more »

EXPLAINER: Why frustration lingers in Okinawa 50 years later

The Associated PressFILE – U.S. Marine Corps Sgt. Mike Anglen of Turner, Ore., center, stands atop a cliff as Sgt. Bryan Wallace of Pikin, Ill., waits for his turn before ... Read more »

Astros beat Nationals 6-1 for 11th straight victory

WASHINGTON (AP) — Jose Altuve homered on the first pitch of the game, Yordan Alvarez and Yuli Gurriel also went deep and the Houston Astros extended their winning streak to ... Read more »

Kreider scores late, Rangers edge Pens 5-3 to force Game 7

PITTSBURGH (AP) — Chris Kreider’s long slap shot bounced over Louis Domingue and into the net with 1:28 left and the New York Rangers beat the Pittsburgh Penguins 5-3 on ... Read more »

Astros push winning streak to 11, roll past Nationals 6-1

WASHINGTON (AP) — Jose Altuve homered on the first pitch of the game, and Yordan Alvarez and Yuli Gurriel also went deep to help the Houston Astros extend their winning ... Read more »

Moustakas, Drury power Reds to 8-2 victory over Pirates

PITTSBURGH (AP) — Mike Moustakas homered twice and Brandon Drury drove in four runs to break out of a slump and lead the resurgent Cincinnati Reds to an 8-2 victory ... Read more »

Peterson's bases-loaded walk lifts Brewers over Marlins 2-1

MIAMI (AP) — Jace Peterson walked against Anthony Bender with the bases loaded in the ninth inning and the Milwaukee Brewers beat the Miami Marlins 2-1 Friday night. After starters ... Read more »

Padres: No cancer found during manager Bob Melvin's prostate surgery

SAN DIEGO (AP) — The San Diego Padres say no cancer was found when manager Bob Melvin had prostate surgery on Wednesday. Melvin, 60, was recovering at home Friday after ... Read more »

Ogunbowale, Gray help Wings rally past Mystics, 94-86

WASHINGTON (AP) — Arike Ogunbowale scored 27 points, Allisha Gray had 21 and the Dallas Wings overcame a 15-point second-quarter deficit to beat the Washington Mystics 94-86 on Friday night. ... Read more »

Resigning North Dakota senator led lawmakers in travel costs

The Associated PressFILE – North Dakota Sen. Ray Holmberg listens during a joint House and Senate Appropriations Committee meeting at the Capitol in Bismarck, N.D., on Jan. 7, 2009. Holmberg, ... Read more »

Residents in picturesque California county hit with gas prices topping $7 a gallon

A California county known for its spectacular mountains and proximity to Yosemite National Park has been paying the nation’s highest gas prices. Read more »

Boudreau to return as coach of Canucks next season

VANCOUVER, British Columbia (AP) — Bruce Boudreau will return as coach of the Vancouver Canucks next season after helping to turn the struggling NHL club around as a midyear replacement. ... Read more »

New Zealand leader Jacinda Ardern tests positive for COVID

On Location: May 13, 2022 Catch up on the developing stories making headlines.The Associated Press WELLINGTON, New Zealand — New Zealand Prime Minister Jacinda Ardern has tested positive for COVID-19 ... Read more »

Today in History for May 14th

Highlights of this day in history: Colonists go ashore in Virginia to set up Jamestown; Lewis and Clark begin to explore Louisiana Territory; Israel founded; Skylab launched; Movie producer George ... Read more »

Twitter CEO expects Elon Musk acquisition to close, addresses spending cuts

Musk is awaiting details supporting calculations that spam, fake accounts represent less than 5% of Twitter's users Read more »

Padres: No cancer found during Bob Melvin's prostate surgery

SAN DIEGO (AP) — The San Diego Padres say no cancer was found when manager Bob Melvin had prostate surgery on Wednesday. Melvin, 60, was recovering at home Friday after ... Read more »

Renovated NYC museum shows indigenous perspectives

The American Museum of Natural History in New York City recently finished a major renovation of its exhibition on the native peoples of the northwest coast of North America. Curators ... Read more »

Police release 911 calls in Gilgo Beach case

A woman who disappeared in a beach community on New York’s Long Island more than a decade ago, sparking an investigation into a possible serial killer, said “there’s somebody after ... Read more »

Academy Awards set 2023 Oscars for March 12

The Associated PressFILE – Oscar statue on the red carpet at the Oscars on Sunday, March 27, 2022, at the Dolby Theatre in Los Angeles. Next year’s Academy Awards will ... Read more »

Actor Fred Ward, of 'Tremors,' 'The Right Stuff' fame, dies

The Associated PressFILE – Fred Ward, a cast member in “30 Minutes or Less,” poses at the premiere of the film in Los Angeles on Aug. 8, 2011. Ward, a ... Read more »

Judge refuses to drop elections suit against Trump, media

NEW YORK — A Colorado judge on Friday denied motions to dismiss a defamation lawsuit filed by an election systems worker against former President Donald Trump’s campaign, two of its ... Read more »

Q&A: Becky G unveils every side of herself in latest album

The Associated PressFILE – Becky G appears at the Oscars in Los Angeles on March 27, 2022. Beck G’s latest album is “Esquemas.” (AP Photo/Jae C. Hong, File) NEW YORK ... Read more »

North Korea reports 21 new deaths as it battles COVID-19 outbreak

SEOUL, South Korea — North Korea reports 21 new deaths as it battles COVID-19 outbreak. Read more »

North Korea confirms 21 new deaths as it battles COVID-19

SEOUL, South Korea — North Korea says 21 people died and 174,440 people were newly found with fever symptoms on Friday alone as the country scrambles to slow the spread ... Read more »

White Sox place Giolito on COVID list, activate Vaughn

The Chicago White Sox placed ace Lucas Giolito on the COVID-19 injured list and activated outfielder Andrew Vaughn following a rehab assignment with Triple-A Charlotte on Friday. Giolito began experiencing ... Read more »

Traded back and forth, Ford learns to live out of suitcase

NEW YORK (AP) — Mike Ford has learned to travel light — and quickly. Since the start of the season, the 29-year-old first baseman has played for Tacoma, San Francisco ... Read more »

Falcon 9 rocket launches Starlink satellites

A SpaceX Falcon 9 rocket launched 53 Starlink satellites to low-Earth orbit from California on Friday. (May 13) Read more »

Celtics' Robert Williams remains out for Game 6 vs. Bucks

MILWAUKEE (AP) — Boston forward/center Robert Williams missed his third straight game with an injured left knee as the Celtics tried to keep their season alive Friday night in Game ... Read more »

Padres sign Robinson Canó, plan to use him off the bench

ATLANTA (AP) — The San Diego Padres have signed veteran second baseman Robinson Canó to a major league contract and plan to use him as a left-handed bat off the ... Read more »

WNBA star's Russia detention extended by 1 month

The lawyer for WNBA star Brittney Griner says her pre-trial detention in Russia has been extended by one month. Alexander Boykov told The Associated Press the relatively short extension indicated ... Read more »

Louisiana justices toss COVID-related charges against pastor

Hundreds of thousands of Americans fighting long-haul symptoms from COVID-19 Dr. David Putrino from Mount Sinai Health System and COVID long-hauler Joel Fram discuss the long-term effects of the disease.The ... Read more »

Sandy Hook lawsuits against Alex Jones on track to resume

The Associated PressFILE – This Tuesday, Dec. 11, 2018, photo shows radio show host and conspiracy theorist Alex Jones at Capitol Hill in Washington. The Sandy Hook families’ lawsuits against ... Read more »

Rockies' Bryant closer to return after cortisone shot

DENVER (AP) — Colorado Rockies outfielder Kris Bryant took swings in the cage Friday for the first time since he was sidelined with a sore back nearly three weeks ago ... Read more »

Mariners demote Jarred Kelenic to minors after poor start

NEW YORK (AP) — Rather than make his Citi Field debut against the team that traded him, Jarred Kelenic was demoted to Triple-A Tacoma by the Seattle Mariners on Friday ... Read more »

Biden: ASEAN partnership 'critical' in this moment

Looking to strengthen ties, President Joe Biden welcomes leaders from the Association of Southeast Asian Nations to Washington for the first time. “We’re launching a new era in U.S.-ASEAN relations,” ... Read more »

Phil Mickelson will not defend his title at next week's PGA Championship

Phil Mickelson caught lightning in a bottle last year at Kiawah Island, winning a major championship at 50 years of age. The fairways flooded, and the golf world stood and ... Read more »

Tennessee Titans' Malik Willis on Ryan Tannehill's mentorship comments: 'Everything is cool'

The Tennessee Titans didn’t take issue with Ryan Tannehill’s comments about mentoring third-round rookie Malik Willis. Willis and coach Mike Vrabel were asked about Tannehill’s scrutinized remarks following the first ... Read more »

Lawyers plan suit against Lufthansa over Jewish passengers

Lawyers for 26 passengers said Friday they told Lufthansa that they will sue the German airline for refusing to let members of a large group of Orthodox Jewish passengers board ... Read more »

Wild face offseason after yet another early ouster

While the Minnesota Wild were stacking up franchise records and securing the extra home game for the first round, general manager Bill Guerin carefully acknowledged a “great year” for the ... Read more »