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Govt should reset income tax
June, 23rd 2009

Global financial consultancy firm Ernst and Young (E&Y) wants the personal income tax slabs to be raised to a reasonable level as the lowest bracket "kicks in too early".

"Government may retain the personal income tax at the existing level, but it should at least raise the slabs as the lowest tax bracket kicks in too early," Ernst and Young partner, Satya Poddar, said.

The general threshold limit for income tax starts at Rs 1.5 lakh per annum, though for women and senior citizens the limits are Rs 1.8 lakh and Rs 2.25 lakh, respectively. These slabs were also raised in the previous budget by the then finance minister P Chidambaram from Rs 1.1 lakh for general assessees, Rs 1.45 lakh for women and Rs 1.85 for senior citizens, respectively.

While citizens with income between Rs 1.5 lakh and Rs 3 lakh have to pay tax at a rate of 10 per cent, citizens with income between Rs 3 lakh and Rs 5 lakh will have to pay at a rate of 20 per cent. People in higher income bracket pay 30 per cent tax.

The government, according to Poddar, need not change the tax rates in view of revenue consideration, but resetting of tax slabs was warranted to provide relief to the people at lower spectrum. Many experts believe that moderation of tax system for companies or individual taxpayers helps the government garner more revenue as the tax base would widen through better voluntary compliance.

Meanwhile, industry body Ficci has suggested to raise the exemption limit to Rs 2.5 lakh along with a demand to reduce the highest personal income tax rate from 30 to 25 per cent in the forthcoming budget.

The maximum rate of 30 per cent income tax rate applies to high-spenders with income over Rs 5 lakh per annum and a reduction in the tax rate on the top slab would leave enough cash in the hands of the consumer to encourage consumption.

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