Finance Minister Nirmala Sitharaman has recently indicated at a cut in income tax. According to analysts, the government can declare relief on the income tax beginning in the budget for the financial year 2020-21. This will immediately profit millions of salaried people in the country, who are anticipating relief from the government in this era of economic sluggishness, as the central government had given a significant aid to the industry in the nation through a steep decrease in corporate tax in September this year.
Sitharaman, while addressing a gathering in the national capital last week, stated that the government is considering a number of measures including a decrease in Personal Income Tax to boost consumption in the country. However, she talked about the income tax exemption to wait until the forthcoming budget. The upcoming budget will be introduced in February next year.
Former SBI Chief Economist, Brinda Jagirdar said that there is a necessity to grow both consumption and investment to eliminate the economy from a phase of sluggishness. The government has provided relaxation to companies through Corporate Tax cuts, but the Individual Income Tax should be lessened to bring back the trust of the middle class. He said that after the introduction of GST, the government cannot do much about secondary tax, but there is still any scope for Direct Tax. The government can declare a primary income tax exemption in the forthcoming budget to spend money in the hands of the middle section and to improve consumption. This exemption can be seen in both income tax slabs and rates.
Tax specialist Balwant Jain quoted the 'Laffer Curve' law in this respect. This law confers the correlation between tax rate and recovery of government revenue. He said the decline in income tax would increase the purchasing capability of the people. This will only enhance the revenue in the form of Indirect Tax. He recommended a reduction in the income tax rate from 20% to 10% on income of Rs 5 lakh to 10 lakh rupees. He also advocated the imposition of a 20% tax on annual income up to 10-25%. Jain said, to take a tax of 30% on earnings from Rs 25 lakh to Rs 1 crore. The government should take a tax of up to 40% on yearly personal income of more than one crore rupees.
According to Chief Economist D K Joshi of rating agency CRISIL, the government will have to take not one but a number of moves to increase demand in the country and to bring the economy out of a slowdown. He said the decrease in income tax could be one of those steps. Finance Minister, Sitharaman had also said, that the government is considering several measures including tax cuts to boost economic growth. In response to a question, Joshi said, "An overall package is needed to strengthen the economy. For this, people's spending power 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 Mgnrega. Reduction in income tax can also be a measure and will be more helpful than the decision to cut corporate tax in increasing demand.'
The cut in personal Income Tax is happening at a time when the country's economic growth has come down to a lower level of more than six years in the second quarter of the current financial year. The country's GDP growth rate was 4.5 percent between July and September. The government has taken multiple measures to accelerate the country's economy so far this year. The corporate tax cut was the most significant decision ever raised in this direction. Rbi has so far reduced the repo rate by 1.35% to burden people's EMIs.
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