In what could discourage many looking for an increase in the personal income-tax exemption limit in the forthcoming Union Budget, the Economic Survey on Friday said the government should refrain from
In what could discourage many looking for an increase in the personal income-tax exemption limit in the forthcoming Union Budget, the Economic Survey on Friday said the government should refrain from raising such exemption limits to facilitate natural growth of individual earnings and widen the taxpayers base. It also suggested increasing property tax.
The survey advocated scrapping tax benefits for savings like PPF and taxing investments at time of withdrawal saying the incentives are availed mostly by the well-offs.
It called for a review and phasing out of the tax exemption raj that benefited the richer private sector and a “reasonable” taxation for better-off individuals.
The survey said that a cross-country comparison shows that India currently has the lowest number of taxpayers as nearly 85 per cent of the economy still remains outside the tax net.
“Just 5.5 per cent of earning individuals are in the tax net and the ratio should be raised to a desirable estimate of about 23 per cent,” it said.
The survey said that the exemption thresholds have been raised much more rapidly than underlying income growth resulting in a widening of wedge between average income and threshold limit. “One of the low hanging fruit would be to refrain from raising exemption thresholds for the personal income-tax, allowing natural growth in income to increase the number of taxpayers. In some ways, this would be reform through inaction,” the survey said.
It said that tax exemptions raj which often amount to redistribution toward the richer private sector will also need to be reviewed and phased out.
“Reasonable taxation of the better-off, regardless of where they got their income from — industry, services, real estate or agriculture — will also help build legitimacy,” the survey added.
It also suggested that property taxation needs to be developed as sparse systematic data on property taxation shows how little attention has been given to this tax.
