Personal taxes, a part of the direct taxes in India, have gone through many major changes throughout the period, since the implementation of the Income tax Act (ACT) in 1922. The Act was given an overhaul in 1961, which stands amended till date. Personal taxes are charged on a slab-rate basis. These slab rates and basic exemption limits have gone through substantial modification over a period of time with the focus of reducing tax burden for an individual.
These rates were prodigiously higher by any standards during the decade of 1970-80 touching up to 97.5%. This required rationalization of the tax structure long before the economic reforms took place during 1990s. The increase in revenue productivity was brought about by drastic reduction in the maximum marginal rates of tax. The tax structure of Personal Income Tax has been rationalized to a large extent during the past 15–20 years, or since the initiation of tax reforms.
We have come a long way in terms of tax reforms; however, when it comes to basic exemption limit and tax rates, considering the rate of inflation in the country, much remains to be done. An increase in the highest slab from the current INR1 million could also bring some relief to the salaried class as no deduction of expenses is allowed against the salary income unlike business income.
Over the past few years the slab rates have remained same with a shift in the basic exemption. This clearly shows that the Government aims to liberalize tax laws and also infuse money in the households so that the burden may be reduced. The wealth tax, which was earlier charged at a rate of 1% was abolished in the 2015 budget.
The Government had introduced education cess @ 2% in 2004–05 and secondary and higher education cess of 1% in 2007–08. Furthermore, in 2013–14 the finance minister introduced surcharge @10% on persons whose taxable income exceeds INR10 million, the same has been increased to 12 %. The Cess is charged over Tax plus Surcharge if any.
Relief in higher basic exemption limit was granted to senior citizens by reducing the eligibility age from 65 years to 60 years considering the average age of retirement in India. Currently, the exemption limit for senior citizens is INR0.3 million and for super senior citizens (above the age of 80 years) it is INR0.5 million. In the last budget, the deduction under section 80D for medical expenses has been also increased to INR30,000 from INR25,000, to promote medical insurance of the aged. In 2012–13, the Government also exempted them from payment of advance tax to reduce their compliance burden.
We still do not have a robust social security network and a common man is required to save for his retirement days. Moreover, any economy needs investment to grow and to generate investments savings need to be promoted. Keeping the above in mind, the deduction limits allowed u/s 80C was increased to INR 0.15 Million, deduction for repayment of first housing loan and savings bank account interest was also introduced. This will promote home ownership and give a fillip to several industries such as steel, cement, etc., besides jobs to thousands of construction workers.
The policy makers were not only successful in reducing the tax burden on certain individuals by charging at reduced rates, but also broaden the tax base by including more provisions, increasing compliances and disclosures. The recent requirement for disclosure of Permanent Account Number (PAN) is another step in this regard.
Another major legislation, the Undisclosed Foreign Income and Assets (Imposition of Tax) Act ,2015 (BMA) has further broadened the tax base and gives power to tax authorities to impose stringent penalties in case of non/wrong disclosure of foreign assets, money and accounts. The bill empowers the Government to enter agreements with other countries for the exchange of information, recovery of tax.
In the same way, the Government is now focusing on recovering the domestic black money by making compliances more stringent.
When an individual makes high-value transactions — investment in property and/or mutual funds — the banks or the respective financial institution (mutual fund house, for example) reports this to the Income Tax department through an Annual Information report (AIR). The department keeps track of such transactions through the PAN.
To conclude, it can rightly be said that introduction of new sections and laws will continue in the coming years to widen the tax coverage and to focus more on expanding the tax base and increase compliance rather than high income tax rates.
“…but in this world nothing can be said to be certain, except death and taxes.”
― Benjamin Franklin
As we all know the countdowns to budget 2016 has begun and let us hope that it will bring some good and some tough changes as the levy of taxation is bound to stay. The budget has always kept everyone on toes to expect the unexpected. It is important especially for an individual, since it will decide his future spending and saving capacity.
So all the best to all of us!!
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