In a significant move that will have a huge impact on the taxpayers of the country, outgoing revenue secretary Tarun Bajaj told Tuesday that the government is considering tax reforms as an unfinished agenda.
Mr. Bajaj stated that personal income tax regime required nothing short of a “complete overhaul”. Although the official said that his view was independent of the preparations under way for Budget FY24, he iterated that there was also a pressing need to align the capital gains’ tax rates and holding periods across asset classes to minimise the room for market-distorting tax arbitrage amongst products.
The broad direction, the official said, should be to ensure gains for most categories of individual taxpayers, and at the same time improve revenue buoyancy with a larger tax base and increased compliance. He cited the strong growth in corporate tax collections over the last couple of years despite the sharp tax cuts in September 2019 to drive home the point that lower rates actually bolster government revenue.
Bajaj said in personal income tax, minimal exemptions should be given and the tax brackets should be expanded. “For instance, the tax bracket (for 20% tax) can be from `5 lakh-15 lakh instead of `5 lakh-10 lakh. This can be a revenue-neutral exercise and the regime will be simpler,” the official, who will demit office on Wednesday, said.
He also said while certain exemptions such as insurance premium for senior citizens would still be needed, most such concessions could go. “Small savings give better interest rates and tax exemption also,” he noted, hinting that both of these benefits might not need to co-exist.
The Union Budget 2020-21 introduced a simplified personal income tax regime, where the tax rates are significantly lower for the individual taxpayers, if they choose to forgo certain deductions and exemptions. The optional regime, however, has found few takers – less than 1% of the taxpayers who filed returns through the Clear portal this year opted for this regime. Indications are that this regime will be done away with in the coming Budget.
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