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Centre may reduce Income Tax slabs: What does the salaried class have to say

By Vishal S
|

New Delhi, Oct 01: In a bid to boost spending and give an impetus to economic activity, the Union Government may change Income Tax slabs so as to increase the disposable income among working class which would in turn drive consumption, say reports.

Last month, the government slashed the corporate tax rate to 22% from 30% for existing companies, and to 15% from 25% for new manufacturing companies. Several other steps have been taken to revive the slowing economy.

Image for representation only

The effects of the slowing economy could be seen in the auto sector where for 4-5 successive months the total number of vehicles sold kept falling.

The aim is to reduce IT slabs which can increase the number of people falling in the tax bracket. Speculations are that the highest slab and the middle range slab may see a 5 percentage point reduction. The Income Tax slabs at present are 5 percent for income between Rs 3 lakh to Rs 5 lakh per year, 20 percent for Rs 5-10 lakh taxable income and 30% tax on income above Rs 10 lakh per annum.

Reports say that the government may not tinker with the lowest slab which is 5 percent. A Hindustan Times report says that the revised rate for salary bracket Rs 5 lakh to 10 lakh, which currently attracts 20 percent tax, could be lowered to 10 percent and the highest slab of 30% could be reduced to 25%.

[Tax Audit due date: Why is #FinanceMinisterMissing trending on Twitter?]

The government constituted the task force on the Direct Tax Code in November 2017 to review the existing income-tax legislation and to draft a new direct tax law in consonance with economic needs of the country.

Current Tax slabs:

Salary Range Tax rate
Income up to Rs 2,50,000 per annum Nil
Income in the range Rs 2,50,001 to Rs 5,00,000 per annum 5%
Income in the range Rs 5,00,001 to 10,00,000 per annum Rs 12,500 + 20% of total income exceeding Rs 5,00,000
Income above Rs 10,00,000 Rs 1,12,500 + 30% of total income exceeding Rs 10,00,000

How will change in slabs increase economic activity:

When the tax on income comes down, a salaried professional would have more income at his/her disposal to spend. It is assumed that if a person has more cash in hand, the individual is most likely to spend it in one form or the other. When lakhs and lakhs of people exhibit similar behaviour, then a large amount would get infused in the economy. And obviously, if one spends, he/she would take something in return (product or service), that in turn boosts the overall demand across sectors. More the demand, more the people would be employed, more goods would move through distribution channels and fulfill the manufacturing woyld have to be increased.

Manufacturing is the backbone of any economy and that gets reflected in quarterly Index of Industrial Production (IIP). IIP, inflation and economic growth are three key indicators that give a picture of the health of the economy. Therefore, the spike in spending can boost the economic activity and arrest the slowdown.

Here's how some experts and working prefessionals reacted:

"I would say it is a welcome move, if it happens. But, this should not be a reason for reduced public spending by Government in the coming years. If the government has a plan to do this, without compromising on the quality of civilian life support, then this must be encouraged," Kiran Kumar K V, Professor in Finance at ISME, Bangalore, told OneIndia.

"Thumbs up for anything the government does on lowering 30% slab," said Badrinath Waiker from Bengaluru.

Sudhanva, also from Bengaluru, echoed similar sentiments and said that if the slabs are lowered, then it would 'up' the middle class sentiments. "Tax cuts are bound to increase savings and spending," he added.

Meanwhile, Iqbal told us that lowering of slabs would leave a working professional with higher disposable income. He said if such a decision is taken then it would be a good step by the government as it would "definately help prop up spending."

Rachit Gulati from Gugaon, however, had a slightly different opinion. He said that this is not the time for such a move as the collections are falling and it would eventually lead to Current Account Deficit (CAD) increasing. "Collections are falling and CAD will increase," Mr Gulati said.

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