The Government has refused to link income tax slabs with inflation which recommended by Parliament’s Standing committee. Government has accepted some recommendation of PSC and rejected some. One of them was to link income tax slabs and tax exemption with inflation.
Last week, the finance ministry presented another draft of the proposed DTC code.
Committee logic with linking income tax slabs and tax exemption with inflation was clear as inflation rate is very high now days as around 10% and it left little amount of tax exempted income in the hands of assessee. For example if income tax slabs are same and basic exemption is 2 lakh, the assessee can purchase 10% less goods with the exempted income. In other words the disposable income in the hands of assessee remains less and less with every year as inflation rate is high and income tax slabs and exemption remains same.
In replying Finance ministry has its logic. “It is not practicable to link exemption limit to the consumer price index for a number of reasons. First, it is not clear why the Consumer Price Index should be the base and not the Wholesale Price Index. Further, complications may arise if the base of the index or the commodity basket changes. Second, it would lead to changes which are not multiples of whole numbers. Third, indexing the slabs to inflation index is not a comprehensive approach as the slab structure is dependent on a number of factors, including other reliefs given to a taxpayer, potential revenue loss to the government, number of taxpayers who would go out of the tax net etc."
Are we Indians are so fool as only believe in figures and not can decide the difference between indices and WPI OR CPI. Income tax department issued cost inflation index data every year for calculating long term capital gain. Can’t they attach it with income tax slabs and tax exemption.
Tax saving investment limit is Rs. 1 lakh which was decided in 2005(Almost 10 years ago). The value of Rs. 1 lakh in 2005 decreased to Rs. 47000 in 2014 and still decreasing.
So there is no reason left to link the income tax slabs and tax exemption with inflation index. Income tax slabs are also in percentage then why can’t the department link it with cost inflation index.
Not only income tax slabs but the tax exemption like infra bonds, RGESS, medical expenses etc. are also should be linked with inflation.
Tags-income tax rates,income tax slabs,income tax rate link to inflation,inflation and income tax,cost inflation index