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Budget 2020: Income tax cuts, slab rejigs on FM's table

Date: 26-12-2019
Subject: Budget 2020: Income tax cuts, slab rejigs on FM's table
NEW DELHI: A flat tax rate without exemptions, new slabs for those earning higher incomes, cuts in personal income tax in line with those in corporate tax — these proposals are being examined ahead of the budget as the government eyes ways of boosting consumption and reviving growth.

The finance ministry will present arguments for and against these suggestions before a decision is taken at the highest level, a government official said. The budget will be presented in February.

“All options are being examined... Any such move needs to be examined in the context of gains it can bring to the overall economy vis-a-vis the cost it entails,” the person said.

An alternative to income tax cuts is putting more money in the hands of the people directly through schemes such as PM-KISAN or enhancing the spending on infrastructure. Any possible change in the structure will only benefit the 30 million individuals who pay income tax, said the person, adding that the cost to the exchequer needs to be balanced with benefits by way of a consumption boost.

On the other hand, “infrastructure sector spending has a multiplier effect”, said the person.

The government has already given away Rs 1.45 lakh crore through corporate tax cuts, but that’s seen as part of broader direct tax reform aimed at attracting investments. But it sparked calls for cuts in personal income tax, since there were no reliefs in this regard in the last budget.

On the contrary, high income earners saw a rise in what they’d be paying out through a surcharge.

The committee set up to review direct taxes has sought a 10% personal income tax rate for those with annual incomes up to Rs 10 lakh; 20% for those with incomes over Rs 10 lakh and up to Rs 20 lakh; 30% for incomes over Rs 20 lakh and up to Rs 2 crore; and 35% for incomes above Rs 2 crore.

It hasn’t suggested any change to the current income tax exemption limit. The taskforce also suggested removal of the surcharge on incomes at the upper limit.

Currently, annual income up to Rs 2.5 lakh is tax free. Income of Rs 2.5-5 lakh is taxed at 5%; Rs 5-10 lakh at 20%; and over Rs 10 lakh at 30%.

These slabs have been stable for many years though the government has been providing relief at the lower end through rebates.

Source: economictimes.indiatimes.com

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