The current landscape of income tax in India presents challenges of equity and efficiency, particularly for individual taxpayers. This proposal seeks to address these challenges by reimagining the income tax regime to promote fairness, simplicity, and economic growth. By expanding the tax base, simplifying tax rates, and fostering discretionary spending and savings, this proposal aims to unleash the potential of India’s economy and create a more equitable tax system.
1.Issues with the Current Income Tax System
1.1 Exclusion of Agriculture Income The current ystem excludes agriculture income from taxation, leading to disparities in tax treatment among different income sources. This exemption undermines the principle of equity and places an undue burden on non-agricultural taxpayers.
1.2 Neglect of Small Businesses in the Unorganized Sector Small thriving businesses in the unorganized sector are often overlooked in the framework, contributing to tax evasion and informal economic activity. The lack of inclusion of these businesses exacerbates inequalities and hampers efforts to expand the tax base.
1.3 Focus on Salaried Class and Retirees The system disproportionately impacts the salaried class and retirees, who rely on savings and pensions for their livelihood. Complex tax filing procedures and limited deductions impede their financial well-being and deter compliance with tax obligations.
2. Proposed Reforms
2.1 Redefining Taxable Income Threshold To address inequities and simplify tax administration, the proposed regime suggests raising the taxable income threshold to Rs 12.50 lakhs per annum. By exempting individuals with below this threshold from income tax liability, the system becomes more equitable and inclusive.
2.2 Streamlining Tax Rates Under the recommended regime, a single income tax rate of 20% is applied to taxable exceeding Rs 12.50 lakhs per annum. This streamlined approach eliminates multiple tax slabs and deductions, reducing complexity and enhancing transparency in tax calculation.
2.3 Indexing Taxable Income Threshold To account for inflationary pressures and ensure the sustainability of thresholds, the proposed regime indexes the taxable threshold to consumer price inflation. This mechanism minimizes the need for annual adjustments and provides stability in tax policy.
Conclusion
The proposed reforms represent a bold step towards transforming India’s income tax system to promote fairness, simplicity, and economic prosperity. By redefining taxable income thresholds, streamlining tax rates, and fostering discretionary spending and savings, these reforms have the potential to unleash the full potential of India’s economy and create a more equitable and inclusive society. As policymakers and stakeholders deliberate on the path forward, it is imperative to prioritize the interests of taxpayers and ensure that the tax system reflects the values of fairness, efficiency, and progress.
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