Budget 2018: The case for Jaitley to abolish Income Tax

Last Updated: Thu, Jan 18, 2018 12:25 hrs
GST Has Cut Effective Tax Rate Across Sectors, Except Electricity

Income tax. It baffled even the great Albert Einstein, who declared that "The hardest thing in the world to understand is income taxes."

But can the complexity of Income Tax alone explain away the fact that only 1.7% of our population has taken the trouble to pay it? Or the fact that only 0.25% declare taxable income over Rs 50 lakh and just another 6.28% taxable income between Rs 2.5-25 lakh?

In 2015-16, the most recent financial year for which the Central Board of Direct Taxes has shared data, income tax revenues, in fact, fell by Rs 3 lakh crore - to Rs 1.88 lakh crore from Rs 1.91 lakh crore.

Ahead of the last full-fledged budget by the Modi government before general elections, Anjana Menon, writing in the Economic Times, is categorical in dismissing the tax as a dysfunctional tax and demanding its abolition.

"Scrapping personal income taxes, on the other hand, will end both covert and thrifty spending. It will free up incomes that could find their way to services ranging from travel to home improvement. It will also give a fillip to consumables from groceries to gadgets. The knock-on effect will create a demand for goods and services that will bolster economic activity. Ring-fenced with tighter GST monitoring, the government might have a winning formula," Ms Menon suggests in her column headlined Dear Arun Jaitley, personal income tax is dysfunctional, just scrap it.

A few interesting arguments were made in support on twitter:

Interestingly, the idea had been mooted by Dr Subramanian Swamy, the ex-Economics Professor whom many had seen as eyeing Jaitley's chair previously.

Full Coverage: Budget 2018

At an ASSOCHAM function, Dr Swamy said "the alternates to income tax can be found in avenues like coal block and spectrum auctions, the big revenue grosser for the exchequer".

Another now-famous name who has supported the abolition of income tax is Anil Bokil of Arthkranti, the man who initially proposed demonetisation to Modi.

From the utopian to the more practical suggestions on the income tax front.

News18 came up with five reasons why it believed the income tax exemption limit was going to be raised by Rs 50000 - to Rs 3 lakh.

A Press Trust of India report carried earlier in The Hindu Businessline, meanwhile, predicted that the government could also "lower tax rate by 10% on income between 5- 10 lakh", while levying a 20% tax on "income between Rs 10-20 lakh and 30% for income beyond Rs 20 lakh".

In the Financial Express, Karan Batra, Founder and CEO of CharteredClub.com, used the opportunity to share another thought. If the government could not introduce a 10% slab for the Rs 5 lakh-Rs 10 lakh taxable income bracket, they could alternatively "increase the income tax slab limit for 20% tax from Rs 5 lakh to Rs 7 lakh and for the 30% tax from Rs 10 lakh to Rs 12 lakh," Batra said.

Many publications are also expecting Jaitley to raise the Section 80 C investment limit beyond Rs 2 lakh from the current Rs 1.5 lakh.

"Considering the increase in cost of living and consequently increase in need for higher savings, it is expected that the cap of permissible deductions under above-mentioned sections may be increased to around Rs 2.5-3 lakhs, to encourage individuals to save more towards their retirements," Moneycontrol wrote.

In the article, Archit Gupta of ClearTax reiterated another long-articulated demand - the doubling of the medical reimbursement limit from Rs 15000 to Rs 30000.

"Saving tax on medical bills has always been a popular demand. A limit of Rs 15,000 is barely enough for even a small family, let alone a big one. With doctor consultation fees increasing by the day and a child’s vaccination going up to Rs 2000 for just one shot, it will only be fair if the government raises the limit to at least Rs 30,000,” he said. Gupta has further tax expectations, which he has shared in the article.

Full Coverage: Budget 2018



More from Sify: