Mumbai, December 8: Finance Minister Nirmala Sitharaman on Saturday hinted that her government was considering cutting personal income tax rates as well. Experts said the move if implemented in letter and spirit will help government boost private consumption and leave common man with more disposable income.
It is highly likely that the government will cut the incumbent personal income tax rates and introduce new ones in the Parliament in February 2020 when the legislature will be holding its Budget session. Sitharaman’s indication, a lower personal income tax rate on the anvil, comes merely days after the RBI released its macroeconomic data projecting lower GDP growth for 2019-20 financial year.
In September, through the Taxation Laws (Amendment) Bill, 2019, the government gave nod to the Corporate Tax rate cut that was introduced vide the Taxation Laws (Amendment) Ordinance, 2019. The Bill which is passed by the both the houses of the Parliament has given significant benefits to domestic companies.
Rahul Singh, Manager, Taxmann says now a domestic company can reduce its income-tax liability to as low as 15 per cent if it satisfies certain conditions.
The government’s motive to reduce corporate tax rates is to provide the much needed stimulus to corporates and push the slow economic growth. “However, in order to boost the consumption, it is equally important that the disposable income of people must be enhanced. Hence the government should reduce the personal income tax rates to enhance the disposable income,” Singh said.
Reducing the personal income tax rates would increase the household demand as well as household saving which would help to increase economic growth. According to Singh, unlike the corporates, the income of an individual isn’t taxed at flat rate.
Individual taxpayers are taxed as per slab rates which are as follows:
Income |
Resident Super Senior Citizen
Resident Senior Citizen
Any other Individual
Up to Rs 2,50,000
Nil
Nil
Nil
Rs 2,50,001- Rs 3,00,000
Nil
Nil
5%
Rs 3,00,001- Rs 5,00,000
Nil
5%
5%
Rs 5,00,001- Rs 10,00,000
20%
20%
20%
Above Rs 10,00,000
30%
30%
30%
Source: Taxman.com
The tax calculated on the total income shall be further increased by the surcharge. The rate of surcharge to be calculated as a percentage of income-tax shall depend on the quantum of taxable income. Surcharge is levied or leviable at four rates or 10 per cent, 15 per cent, 25 per cent and 37 per cent.
“From the above calculation, it is verified that the income-tax rates of an individual tax payer is fairly higher than the tax rates applicable for domestic companies,” Singh explained. It was expected the Finance Minister Nirmala Sitharaman would reduce the personal income-tax rates while bringing the Taxation Laws (Amendment) Bill, 2019 in the Parliament. However, there was no reduction of personal income-tax rates in the Bill at that time. “Thus, we may see some major tax announcement favoring individual taxpayers in the upcoming Budget 2020,” Singh said.