India Changes Some Personal Tax Rates to Spur Income Disclosures

  • Tax rate cut to 5% on incomes between 250,001-500,000 rupees
  • Additional levy on people with incomes between 5m-10m rupees

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India will change some personal tax rates to encourage people to disclose their incomes as well as put more cash in the hands of consumers after Prime Minister Narendra Modi withdrew old high-denomination banknotes in a crackdown on unaccounted wealth.

The personal tax rate will be halved to 5 percent on incomes between 250,001 rupees ($3,697) and 500,000 rupees, Finance Minister Arun Jaitley said Wednesday in New Delhi, while announcing the budget for the year starting April 1. A surcharge of 10 percent will be levied on the personal tax paid on incomes between 5 million rupees and 10 million rupees, he said.

“While the government is trying to bring within tax-net more people who are evading taxes, the present burden of taxation is mainly on honest tax payers and salaried employees who are showing their income correctly,” said Jaitley. “Also an argument is made if a nominal rate of taxation is kept for the lowest slab many more people will prefer to come within the tax net.”

The step is part of efforts of the government to widen the tax net in a country of more than 1.2 billion people where about 53.8 million filed details of their personal incomes. The move will also likely put more disposable cash in the hands of people as growth in Asia’s third-biggest economy slows.

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Gross domestic product is predicted to expand 6.8 percent in the year through March, from 7.9 percent a year earlier, according to the median forecast of analysts surveyed by Bloomberg.

Indians with annual income up to 250,000 rupees for the current fiscal year are exempt from paying any personal tax. A 10 percent tax is levied on income from 250,001 rupees to 500,000 rupees; 20 percent for 500,001 rupees to 1 million rupees; and 30 percent for more than 1 million rupees. In addition, a 3 percent education levy is also charged on personal incomes. Individuals with an annual income exceeding 10 million rupees have to pay a surcharge of 15 percent on the personal tax paid.

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