New Delhi: Since 2014, the Modi government's approach to personal income tax has been marked by incremental changes rather than sweeping reforms. The introduction of a new simplified tax regime and the reduction of the lowest slab rate to 5% in the old regime stand out as notable modifications.
Understanding the Tax Framework
The current tax structure offers two paths for taxpayers:
- The new regime: Lower tax rates but no deductions
- The old regime: Higher rates with benefits of various deductions and exemptions
For individuals earning up to ₹7 lakh annually under the new regime, income is effectively tax-free, representing significant relief for lower-income taxpayers.
The Common Man's Perspective
The definition of a "common man" in tax terms typically encompasses those earning up to ₹10-12 lakh annually. Rahul Garg, Advisor to Assocham's National Council on Direct Tax, notes that recent changes have primarily benefited those at the lower end of the tax pyramid.
Key Considerations:
- Inflation Impact
- Core inflation remains largely controlled
- Food inflation affects non-taxpayers more significantly
- Tax threshold adjustments partially offset inflation impact
- Compliance Challenges
- Small business owners and entrepreneurs face complex compliance requirements
- Presumptive tax regime suggested as a potential solution
- Multiple law compliance remains a significant burden
- Tax-Benefit Analysis
- Tax revenue funds essential infrastructure
- Provides subsidized services (food, education, healthcare)
- Benefits received exceed cumulative tax collections
Government's Perspective
The government's cautious approach to tax cuts stems from several factors:
- Personal income tax as a stable revenue source
- Need for resource redistribution
- Infrastructure development requirements
- Social service obligations
Revenue Implications
Every tax concession impacts government revenues:
- Deductions reduce taxable income
- Rebates directly lower tax liability
- Income threshold revisions affect tax base
Reform Suggestions
- Simplification Measures:
- Streamlined compliance procedures
- Enhanced digital integration
- Reduced documentation requirements
- Middle Class Relief:
- Regular threshold revision for inflation
- Simplified deduction structure
- Improved tax-filing experience
- Small Business Support:
- Expanded presumptive taxation
- Reduced compliance burden
- Digital compliance tools
Looking Ahead
The government's approach to personal income tax reflects a balance between:
- Revenue requirements
- Social welfare objectives
- Economic growth goals
- Taxpayer relief
While major tax cuts might not be imminent, focus areas include:
- Continued simplification
- Digital transformation
- Improved service delivery
- Enhanced compliance ease
The Way Forward
For meaningful tax reform, considerations should include:
- Regular inflation adjustments
- Simplified compliance
- Enhanced digital infrastructure
- Better taxpayer services
- Transparent benefit delivery
As India's economy evolves, the tax system must balance revenue needs with taxpayer relief while ensuring efficient resource redistribution and infrastructure development.
[Note: Tax regulations are subject to change. Readers should consult tax professionals for specific advice.]
