Finance Minister Nirmala Sitharaman has recently indicated a cut in Income Tax. According to analysts, the government may announce relief on the income tax front in the budget of 2020-2021. This will directly benefit the crores of wage earners of the country, who are expecting relief from the government in this phase of economic sluggishness, as the central government has given a big boost to the corporate industry through a huge reduction in corporate tax was relieved in September this year. Sitharaman, while addressing a program in the national capital last week, said that the government is considering several measures including a reduction in personal income tax to increase consumption in the country. For the time being, he talked about waiting till the upcoming budget for the exemption in income tax. The upcoming budget will be presented in February next year.
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It is possible to announce a big rebate in Income Tax Brinda Jagirdar, the former Chief Economist of SBI, said that both consumption and investment need to be increased to get the economy out of sluggishness. The government has given relief to companies through the Corporate Tax cut, but to bring back middle-class confidence, the Individual Income Tax should be reduced. The Jagirdar said that after the implementation of GST, the government cannot do much about Indirect Tax, but there is still some scope for Direct Tax. He said, "To give money in the hands of the middle class and to increase the consumption, we can announce a big rebate related to Income Tax in the upcoming budget. This rebate can be available both in income tax slab and rate.
Reduction in tax rate may increase revenue collection Tax expert Balwant Jain cited the 'Laffer Curve' principle in this regard. This principle shows the relation of tax rate and recovery of government revenue. He said that by reducing income tax, people's purchasing power will increase. This will increase revenue in the form of Indirect Tax. He advocated reducing the rate of income tax from 20 % to 10 % on income of Rs 5 lakh to Rs 10 lakh. Along with this, he advocated taxing 20 % on annual income up to 10-25 %. Jain said to take 30% tax on income from Rs 25 lakh to Rs 1 crore. According to Jain, the government should levy up to 40 % tax on personal income of more than one crore rupees.
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Overall package is needed According to DK Joshi, Chief Economist of rating agency CRISIL, the government will have to take many steps to increase demand in the country and bring the economy out of a slowdown. He said that a reduction in Income Tax could be one of them. Finance Minister Sitharaman also said that the government is thinking of several measures including tax cuts to boost economic growth.
"An overall package is needed to strengthen the economy," Joshi said in response to a question. For this, the spending power of people needs to be increased. The government will have to pay money in the hands of the lowest income people. This amount can be given through schemes like MNREGA. Income tax reduction can also be a measure and it will prove more helpful than the decision to cut corporate tax to increase demand.
These things of reduction in personal income tax are happening at a time when the pace of economic growth of the country has come down to more than six years in the second quarter of the current financial year. The country's GDP growth rate was 4.5 % between July and September. The government has taken several steps to speed up the country's economy so far this year. Corporate tax cuts were the biggest decision taken in this direction. At the same time, the RBI has also reduced the repo rate by 1.35 % to burden the EMI of the people.
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