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February 25, 2000
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How will personal taxes change?
Presenting the second of the rediff.com-Dun & Bradstreet India special pre-Budget analysis series. This article examines the existing personal tax rates and peeps into what the government could possibly introduce.
India has chosen to progressively reduce personal taxation in recent years. It would be interesting to note that the maximum rate of personal income tax in India is currently 33 per cent, while it is 39.6 per cent in the US.
Some of the salient taxpayer-friendly features introduced in the recent past include:
- Doing away with double-taxation of dividends; dividends are now subject to tax in the hands of corporate entities in the form of distribution tax.
- Exempting the income from mutual fund units from income tax, thus providing an impetus to the equity and mutual fund culture.
- Enhancing the amount eligible to be claimed as a deduction from income in respect of interest on home loans (self-occupied property) to Rs 75,000 from the earlier limit of Rs 30,000. It is noteworthy that one can claim the entire interest paid on housing loans as a full deduction on property which is rented out.
- Reducing long term capital gains tax to 10 per cent for resident individuals.
Tax-Payers' Expectations from the Union Budget 2000-01
- Removal of 10 per cent surcharge on income tax which was imposed last year.
- Increasing the basic exemption limit to Rs 75,000 from present limit of Rs 50,000.
- Increasing Standard Deduction limits to reflect true cost of living for an average taxpayer.
- Taxing stock option-related gains only when the shares are sold, as against the current rule of taxing them at the time of exercise of options.
- Enhancement in the maximum amount allowed to be invested under section 88 for tax rebate.
- Allowing the deduction of interest paid on home loans in respect of self-occupied property in full as in the case of let-out property.
- Completely exempting the gain on sale of primary residence from taxation. Similar rules exist in other countries like the US.
Government's wish list
The government is eager to augment its resources from individual taxation and could take the following steps:
- Widen the tax base further by extending compulsory filing of returns to other criteria apart from the six currently in force.
- Introduction of a new higher slab rate for individuals with significantly higher incomes.
- A withholding tax on sale of securities.
- Reference to Permanent Account Number being made a compulsory component of more transactions.
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