 "Income tax")
The upcoming Union Budget 2022 is unlikely to bring any tweaks in the existing income tax rates.
The thinking in the government and among Budget makers is that, given the continued uncertainty around Covid-19 and its impact on household income and savings, any change in tax rates could be counter-productive.
“If the existing rates are changed, while some sections of taxpayers may benefit, others may see a rise in their income tax liabilities, since the government will also have to ensure that there is minimal revenue foregone. The view is that perhaps the populace is not ready for big changes in tax rates,” a top official told Business Standard.
Officials point towards the recently announced goods and services tax (GST) rate hikes for footwear and textiles. In order to rectify the inverted duty structure for these two sectors, GST was raised to 12 per cent effective from January 1, 2022. While experts praised the move, there was public criticism on social media and a section of the clothing industry decried it, saying that only a small group of the sector had an inverted duty structure.
“Even GST rate hikes to correct the inverted duty structure led to some backlash. This could happen in the case of direct tax rates as well, which shows that the time is probably not right for any changes,” the official said.
Another official said had it not been for the pandemic, major personal income-tax reforms would have been the “next frontier” for the government, after GST and reduction in corporate tax rates. These reforms would have involved major changes in tax rates, which could have increased the burden for some taxpayers.
PLAYING IT SAFE
- Budget makers feel households yet to recover fully; Omicron variant adds to uncertainty
- Officials say the environment isn’t conducive for major changes in tax rates
- Had it not been for Covid, govt could have gone for major I-T reforms, sources say
- While tweaks would have had some benefit, officials say, others would have had a higher tax burden
- Given the upcoming elections, political leadership is likely to favour no changes in rates
Discussion on tax announcements is ongoing in the finance ministry. However, given the continuing lack of certainty due to the Omicron variant of coronavirus, and the fact that the Budget will be presented just before elections in crucial states like Uttar Pradesh and Punjab, the political leadership is likely to go with the view of keeping rates unchanged.
The last tweaks in personal income tax rates came in the 2020-21 Union Budget, just before the pandemic hit India in a big way.
Union Finance Minister Nirmala Sitharaman had announced lower tax rates for those willing to forego certain exemptions and deductions. For the Rs 5-7.5 lakh annual income bracket, the rate was reduced to 10 per cent from 20 per cent.
The income tax rate was cut to 15 per cent from 20 per cent for the Rs 7.5-10 lakh slab, to 20 per cent from 30 per cent for the Rs 10-12.5 lakh bracket, and to 25 per cent from 30 per cent for the Rs 12.5-15 lakh bracket.
Various data points show that the economic recovery is still not as broad-based as policymakers would like and household incomes are stressed. The latest gross domestic product data (July-September) showed private final consumption expenditure was below pre-pandemic levels.
The Reserve Bank of India’s Consumer Confidence Survey for November was below subdued, and according to the Centre for Monitoring Indian Economy’s Consumer Pyramid Survey, average household incomes fell 19 per cent between January and May 2021, due to the second wave of the pandemic. In the first wave, incomes had fallen by as much as 44 per cent, the survey stated.
The finance minister is expected to present the 2022-23 Union Budget on February 1.
