Rationalise tax rate for middle-income group: PHD Chamber
2 min read . Updated: 28 Jan 2023, 12:43 PM IST
Premium- The middle-income class got some relief on tax burden under the new personal income tax regime but the peak rate of 30% on them is very high compared to the tax regimes in other leading economies, the industry body said
New Delhi: Rationalization of peak income tax rate of 30% for middle-income level calls for immediate attention by the government, industry body PHD Chamber of Commerce and Industry said in a statement.
The middle-income class got some relief on tax burden under the new personal income tax regime but the peak rate of 30% on them is very high compared to the tax regimes in other leading economies, the industry body said.
India does not levy any tax on income levels upto ₹2,50,000 like economies such as France, Germany, United Kingdom and Brazil, while in other leading economies, though the middle income class pays high tax, it is not subject to peak tax rates, PHD Chamber said quoting its study ‘Incidence of direct taxation in leading economies.’
“Though the new tax-regime in India lowers tax burden on middle income class to some extent by applying peak tax rates to income above ₹15,00,000 (as peak tax rate was applied to income above ₹10,00,000 in old tax regime), still, the middle income class is subject to peak tax-rate of 30% which is very high as compared to other leading economies, the industry body said quoting its president Saket Dalmia.
In the light of persistently higher inflation levels and to provide relief to the lower and middle-income class, many leading economies have indexed the threshold income brackets to respective rates of inflation, said the industry body.
Income-tax thresholds in 2023 are set to increase by 5.4% in France to match inflation. In Canada, all five federal tax brackets for 2023 have been indexed to inflation using the 6.3% per cent rate, said the Industry body.
The higher the gap between threshold and peak income level, the more uniform is the distribution of tax-burden and lesser the impact on middle income levels, said industry body. Threshold to peak rate multiple is the highest in the United States (37X), followed by China (27X), Germany (27X) and Japan (21X). In India, the threshold to peak rate multiple is low i.e. (6X), the chamber said.
“Lower the gap between threshold and peak income level, the more the tax-burden is likely to be borne by middle income levels and the distribution of tax-burden is skewed (threshold income in India is ₹2.5 lakh and peak income is Rs15 lakh, so the threshold to peak rate multiple is very low). Middle income level in India (the upper band of middle income i.e. above ₹15,00,000) is facing the peak-tax rate which impacts their personal disposable income and aggregate demand in the economy," said the Industry body.
“Going ahead, rationalization of peak tax rates for middle income levels calls for immediate attention of the Government which constitutes significant proportion of our population," the statement said quoting Dalmia
“There is a need to create uniformity in the tax-slabs in order to bring down the tax-burden. The taxable income threshold should be increased from ₹2.5 lakh to ₹5 lakh and accordingly, there should not be imposition of peak tax rate on income upto ₹25,00,000, said the Industry body.
