Multiple slabs in tax regime in line with global practice

NEW DELHI: The government has tried to calm fears about multiple slabs in the new proposal tax regime, which comes with the option of a free exemption with lower rates, saying that the measure was in line with global practice and was intended to ensure better compliance.

“We have studied the rates across countries and several of them have five-six slabs, if not more. It is very logical. As long as inequality in the society exists, people have to be tax ed at different rates. It’s the standard practice in many countries, developed and developing, from the US to South Africa and Singapore,” revenue secretary told TOI.



The new mechanism proposed in the Budget has six slabs, ranging from 5% to 30%, for several slabs, in addition to a surcharge on those who earn more than Rs 50 lakh annually.

While many experts have argued that it makes the maths more complex, government officials maintained that it was a formula-based approach, and dismissed suggestions that it complicates matters for an average tax payer. Since the regime will be optional, there is another set of tax payers who will have a different slab and their tax able income will exclude exemptions for investments, standard deductions and allowances such as house rent and leave travel.

There have been suggestions that the new regime should have two-or-three slabs but Pandey said it may not be equitable. “How can a billionaire be tax ed at the same rate as someone who is at the threshold of joining the tax range?”

Besides, tax officials said, there could be scope for evasion in the non-salaried category as individuals may understate their income to stay in the lower bracket. Pandey also dismissed suggestions that tax rates in India were very high, especially when the government did not offer social security and good quality education or healthcare facilities to citizens.

“There is a misconception that tax rates in India are very high. There are only 3 lakh people paying over 30% income tax and only 4,000 in the 41-42% range. In China the highest tax slab is 45%. In many states in the US, the rate is 52% and it kicks in at an annual income of Rs 3.5 crore. In , the top slab of 45% kicks in at around Rs 60-62 lakh (AUS $124,000). Also, in many of these countries welloff tax payers are not eligible for social security benefits.”

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