There has been no change in the individual tax rates since 2017-18. While the simplified personal tax regime was introduced effective FY 2020-21, the tax rate did not undergo a change. Asked about the top income tax relief measures that the government can take, most participants said that revising income tax slabs with the 30% tax slab at income of above Rs 20 lakh (as against current Rs 10 Lakhs) should be considered in Union Budget 2023.
Income Tax Slabs 2023-24: A case for revision
The highest slab rate for an individual taxpayer is currently pegged at 42.744% which is significantly higher than the corporate tax rate of 25%. “Clearly there is a need to align the individual tax rates with corporate tax rates. One may expect that the highest tax slab rates be reduced from 30% to 25% and/or the applicable slab for 30% tax rate be increased from Rs 10,00,000 to Rs 20,00,000,” says Saraswathi Kasturirangan, Partner at Deloitte India.
“Resident individuals with taxable income up to Rs 5 lakhs are not subject to tax while those exceeding Rs 5 lakhs directly fall into the 20% tax bracket if opting for regular tax regime. Hence the need to rationalise tax slabs as well,” she says.
As seen in the table above, under the regular tax regime, if such a change is effected, then individual taxpayers can save up to Rs 104,000/- (without considering surcharge).
Time to tax super rich? Why income tax slabs, exemptions need revision
Section 80C and standard deduction: Hike limits
Some of the other top income tax expectations of the common man include a hike in the Section 80C limit from Rs 1.5 lakh and an increase in the standard deduction from Rs 50,000 to Rs 1 lakh.
As seen in the tables above, an individual earning Rs 25 lakh can save up to Rs 31,200/- if the Section 80C limit is hiked to Rs 2.5 lakh. Similarly, if the standard deduction is hiked to Rs 1 lakh, then a salaried taxpayer earning Rs 25 lakh can save up to Rs 15,600/- additional in tax outgo.
New Income Tax Regime
Interestingly, while the government introduced a new income tax regime with lower tax rates, for over 60% participants the old tax regime works while filing tax returns. Over 20% are waiting for a newer regime and only 18.75% opt for the new tax regime.
An individual may avail lower tax rates under simplified tax regime, but has to forego exemptions and deductions such as house rent allowance, leave travel concession, interest on house property, deduction under section 80 C and 80D amongst others.
Over 69% respondents believe that the new tax regime can be made lucrative by triggering the 30% tax rate at income beyond Rs 25 lakh, instead of Rs 15 lakh at present.
According to Saraswathi, there is a strong need for lowering tax rates under the simplified tax regime, to make it attractive. “Given that the corporate tax rate was reduced to 25% before doing away with deductions and exemptions, there is a case for lowering the maximum marginal tax rate under this regime to 25%,” she says.
For a salaried taxpayer earning Rs 25 lakh, if the new income tax regime sees a revision in tax slabs as proposed in the table above, the savings would be up to Rs 65,000/-
Common Income Tax Return Filing Form
The CBDT recently issued a draft circular proposing a common ITR form which subsumes ITR-1 to ITR-6. ITR-7 is proposed to be kept separate while ITR-1 and ITR-4 will continue to be available. Over 71% of the TOI-Deloitte Survey respondents were not aware of such a move being considered.
Asked whether a common ITR form will ease the compliance burden, over 53% participants believed it would.
“The objective of these forms is to enhance ease of filing returns, while minimizing the tax return filing time. Schedules which are not relevant will not be required to be filled in, reconciliation of third-party data available with the Income-tax Department vis a vis the data to be reported in the ITR will also be possible,” explains the Deloitte Partner.
Ease of Filing Income Tax Returns
Almost 50% of the participants said the government should look to further ease the process of filing income tax returns. With the increased data-mining, capturing of tax payer related financial information and pre-filling of data in for the tax returns, the filing of tax returns has been streamlined to a great extent. “Faster processing of tax returns by the Centralised Processing Centre is another welcome move,” says Saraswathi.
“Tax payer experience can be enhanced further by stabilizing the tax return forms and providing customized responses to grievances filed on the portal. Avoiding automatic adjustment of tax refunds against past tax demands, limiting past demands to specific timelines etc could help the taxpayer track these in a better manner,” she adds.
Income Tax: Work From Home Benefits
With increasing work from home, employees have the benefit in terms of having the flexibility to choose their place of work (which could be their hometown, or office location or any other location of their choice) and also cut down on their commute time and cost. However, these do come with additional challenges and costs to the employees.
Over 74% of the survey participants are of the view that there should be tax benefits/allowances for salaried employees for Work from Home.
“From a cost perspective, employees clearly need to invest in enhancing their internet connectivity, spend more on mobile/telephone expenses, ensure availability of personal space at home to carry out their office duties, and also incur higher utility costs in many cases,” notes Saraswathi.
Keeping all of this in mind, the salaried class may expect a deduction for such home office expenses. “There can be specific deductions provided for work from home expenses or existing standard deduction can be increased to provide a relief. A lump sum deduction towards home office expenses, while providing relief to those working from home, will also reflect the norms of minimum governance and ease of compliance for taxpayers with no additional task of maintaining the supporting documents for the same,” she recommends.
Annual Information Statement & Taxpayer Information Summary
Almost 50% of the respondents were not aware of the AIS and TIS provided on the income tax website.
Over 35% feel that it is too complicated to understand the information captured under the AIS and TIS.
“The comprehensive information captured under the AIS enables the tax payer to verify such information and enhance the accuracy of the tax returns. The onus is on the tax payer to ensure that the information captured in the tax return is correct, and helps minimize notices from tax authorities,” says Saraswathi.
Are Income Tax Rates in India high?
Over 71% of the TOI-Deloitte survey participants feel that the income tax rates in India are high. The highest slab rate for an individual taxpayer is currently pegged at 42.744%. The marginal tax rates in countries such as the USA, Singapore are 37%, 22% respectively.
“HNIs tend to shift residency to low tax rate counties, if the maximum marginal rate is perceived as significantly high, and hence reducing the maximum marginal rate would be a step in the right direction,” says Saraswathi.