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Mop-up prompts tax tweak move

New Delhi, Dec. 25: Encouraged by record collections, the government is planning to change the slabs for personal income tax.

At present, the tax slabs are such that an individual does not have to pay or file income tax returns if he earns up to Rs 1.1 lakh annually.

Women and senior citizens are exempt up to annual incomes of Rs 1.45 lakh and Rs 1.95 lakh, respectively. Individuals can also deduct up to Rs 1 lakh from their taxable incomes if they invest in specified securities.

Officials said the government would look at raising the threshold for taxation.

“The threshold should be raised given the increase in income levels and inflation. Again, we do want to increase tax filing as we have found this has meant better tax compliance. The two targets are in conflict ... we will have to work out a compromise,” they said.

“For instance, if the minimum taxable limit is raised to Rs 1.5 lakh, it won’t make a big difference in the number of tax filings or reduce tax collections either,” the officials said.

At present, income between Rs 1.1 lakh and Rs 1.5 lakh attracts a 10 per cent tax.

Officials said if the threshold was raised, the lowest tax slab would also have to be raised. “Maybe up to Rs 2 lakh or Rs 2.5 lakh.”

Similarly, the other two slabs of 20 per cent and 30 per cent would also have to be pushed up.

Officials said there were no moves as yet to abolish a 10 per cent surcharge on the top income bracket for those who earned more than Rs 10 lakh annually.

Personal income tax collection up to the middle of this month has grown 42.83 per cent to Rs 65,774 crore against Rs 46,051 crore a year ago.

This huge increase in tax collection, which actually accounts for just a small percentage of the government’s revenues, gives it the scope to review the slabs, a move which could endear the government to middle-class voters.

There are also suggestions that the cap of Rs 1 lakh for investments in tax-saving instruments be raised.

Officials said this too was a possibility and there could be quite a few permutations and combinations on this in case the ceiling was raised.

“There are suggestions to have a separate category of long-term savings such as pensions and insurance which will be eligible for tax savings under a different ceiling.”

However, officials added that as a rule, the government was against creating new categories of exemptions as it would lead to problems for tax authorities and create legal loopholes.

Officials said minor tax benefits to individuals by way of adjustment in slabs did not cost much and could actually encourage better compliance and, thus, more revenues.

“Besides such moves are welcomed by the middle class who form the bulk of voters in urban India ... politicians naturally like such ideas,” they added.

However, whether these ideas will or will not see the light of the day will depend on a host of other issues, the officials added.

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