ICAI in its pre-budget memorandum on Direct Taxes recommended Abolition of Surcharge on Income Tax and Further suggested that Exemption Limit in Rate of Tax for Individual and HUF should be increased from 2 Lakh to 3 Lkah (Basic Exemption Limit)  from 5 Lakh to 10 Lakh (10% Tax)  and from 10 Lakh to 20 Lakh (20% tax).

First Schedule – Surcharge

Issue – The Finance Act, 2013 levied a surcharge@10% on an individual with total income exceeding Rs.1 crore and for corporate (domestic companies), surcharge@10% only if, the total income exceeded Rs.10 crores. While levying this additional surcharge the Finance Minister in his speech had
mentioned that the additional surcharges will be in force for only one year, that is Financial Year 2013-14.

Suggestion- Since the intent of the Ministry of Finance, while introducing these additional surcharges, was to limit it only for the financial year 2013-14, these surcharges should be abolished from the financial year 2014-15 and onwards.

Rates of Taxation

Issue / Justification  –  With regard to rates of taxation for individual and HUFs, the Parliamentary Standing Committee on Direct Taxes Code had observed the following:

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“When the present Income Tax Act was enacted way back in 1961, the per capita income of this country was extremely low. During the course of five decades of the working of the Income Tax Act, the national per capita income has increased multifold, widening the scope for taxing various incomes. At the same time, the absolute number of poor has also increased manifold, warranting much larger government outlays. The aspirations of the people for better living standards and their expectation from government to deliver the same has also simultaneously increased. It is therefore, necessary that these challenges in a growing economy and a developing society are kept in mind, while formulating a new Direct Tax Law.

84. A Direct Tax by definition is a levy on the income A Direct Tax by definition is a levy on the incomes,  profits and wealth earned and generated by individuals and entities. Thus, a direct tax by its very nature and scope cannot be imposed on everybody. It has necessarily to be a focussed levy which should reflect and tap the rising incomes and prosperity in a growing economy. The tax rates and structure should therefore be tailored in a way that will ensure sufficient buoyancy and dynamism. As the economy expands and diversifies, the tax policies cannot remain caught in a time-warp. Ways and means of augmenting revenue would have to be found not merely by broadening the base but also by deepening the trunk to tap both potential as well as concealed incomes and wealth. In this regard,there are three distinct categories of income, which require to be tapped or brought to book, namely (a) untaxed/non-taxed income; (b) potential income; (c) concealed income.

85. On the whole, the Committee would expect the tax policy and procedures to be fair, just and equitous, bringing fiscal stability at least over the medium-term, obviating the need to make changes in rates structure etc. during every Budget. Fiscal stability together with certainty will no doubt go a long way in sustaining economic growth and development. Needless to say, governance standards would, in the final count, determine the efficacy and the credibility tax policies carry with taxpayers.

86. The Committee find from the information made available that tax collected in the income slab of 0-10 lakh is Rs. 21,094 crore and the total number  of taxpayers is about 2.76 crore; while the corresponding figures for the income slab of 10-20 lakh is Rs. 10,185 crore with only 3.35 lakh taxpayers; the same for the more than 20 lakh income slab is Rs. 53,170 crore tax collected with a mere 1.85 lakh taxpayers. The Committee further find that in the income slab of 0-2 lakh, the number of taxpayers is around 2.02 crore, which decreases to 56.73 lakh in the next income slab of 2-4 lakh. With regard to the percentage of taxpayers in different income slabs, it is 89% (0-5 lakh), 5.5% (5-10 lakh), 4.3% (10-20 lakh) and 1.3% (above 20 lakh). On the corporate tax side, the tax collected in the slab of 0 to 100 crore is Rs. 44,016 crore, Rs. 23,421 crore in 100-500 crore slab; and Rs. 54,558 crore in the above 500 crore slab. The extent of revenue foregone for the above slabs has been found to be Rs. 23,200 crore, Rs. 11,779 crore and Rs. 27,895 crore respectively. The figures mentioned above only seek to confirm the view that the tax structure and the prevailing tax regime is regressive – both for individual as well as corporate tax payers. The Committee desire that the character of the tax regime should change and it should be made more progressive. This would entail greater relief for small taxpayers – both individuals and corporate and moderately higher rates for taxpayers in the higher bracket.

87. The Committee find it astonishing that almost 90% comprise of individual taxpayers in the 0-5 lakh income slab without commensurate tax yield; which translates into nearly 3 crore assesees. In a belated recognition of this paradox, the Department has exempted taxpayers in the lower income slab (0-5 lakh) from filing tax returns, thereby reducing the Department‟s processing burden. The Committee find it absurd that the Department should diffuse their energies and spread their resources thin over handling such a large number of individuals with low income potential. The argument that more taxpayers have to be brought within the tax net for widening the tax base can hold water only to the extent that this approach brings in more taxpayers and tax revenue from the higher income brackets, rather than simply adding to the numbers in the lower segments.

88. Keeping in view the inflationary trends in the economy and the imperative to leave more disposable incomes in the hands of individual tax payers, particularly those in the lower income bracket, the Committee would recommend that the tax slab attracting „nil‟rate, that is, full exemption from tax on income should be raised to three lakhs from the proposed two lakhs. Higher exemption limit may be considered for women and senior citizens. The age for senior citizens should be relaxed from 65 years to 60 years. As reasoned earlier, higher exemption limit would go a long way in minimising the compliance and transaction costs of the Income Tax Department, which can now focus their attention and re-orient their resources on the higher income groups, untaxed or concealed incomes, and categories and sectors that are avoidance or evasion prone. The revenue gap, if any, could be easily bridged by way of stringent measures to curb and bring to book unaccounted money and through realisation of huge tax arrears and by way of savings from the proposed transition to the investment-linked incentive / exemption regime.

89. Thus, in the light of reasons cited above and in pursuance of the wellrecognised and widely accepted rationale of moderate tax rates inducing better tax compliance and with a view to giving some relief to the small tax payers, the Committee would recommend the following revised tax slabs :

Slab (lakhs) Tax rate
0-3 Nil
3-10 10%
10 -20 20%
beyond 20 30%

ICAI’s Suggestion :-

In  line  with  the  recommendations of the Standing Committee on Finance on DTC and for the reasons mentioned therein, the following tax slabs are suggested:

Slab (lakhs) Tax rate
0-3 Nil
3-10 10%
10 -20 20%
beyond 20 30%

Source- Pre-Budget Memorandum of ICAI on Direct Taxes

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0 responses to “ICAI – Increase Tax tax exemption limits & abolish surcharge”

  1. B Srinivasan says:

    The discrimination meted out to Senior NRI Citizens need attention. For Resident senior citizens the Taxable exemption limit is 2.50lacs where as for NRI SENIOR citizens IT IS ONLY 2.00LACS. I also understand that there is discrimination in case of Capital gains tax and others between Residents and NRIs. I request “TAX Guru” to bring it to the notice of F.M.

  2. Bharathi says:

    Generally slab rates to be revised so that all pay some tax, but gets lot of relief…
    Perquisites should be rediined for PSU employees..
    Relief for all Section 12A registered Trusts should be full…
    For ETDS return filers Section 234E should be omited retrospectively…..
    Section 10(38) and 112 to be more simplified…
    for Banks sectioon 36(1)(vii), (viia) should be redifined…In Section 36(1)(viii)the concept of ‘Net profit’ should be clearly expalained/defined….
    TDS provisions should me more liberal and exemption u/s 197 should be more liberal..
    Domestic transfer pricing should be abolished and also International Transfer pricing litigations should be reduced

  3. V SIVARAMAN says:

    TDS is the most PUNITIVE tax and must be abolished TOTALLY.

    If I earn income I must pay tax and not my customer/client who pays me.
    What does my customer/client know of my income? I may have b/fd LOSS and other exemptions like savings/ Donation to eligible organisation like CRY etc that I need not pay tax. Where-as the moment someone pays be 30001 tax @ 10% (the min tax slab) is deducted from my GROSS INCOME.
    IF my total income is just 250,000.00, Rs, 25000 is deducted as TAX while my liability is just 3000+cess. I have to wait indefinitely to get refund.

    When i have 50 clients who pay me 10 payments each each year i have to track 500 TAX deductions to account and claim refund which never comes.

    I as a expender why should i bother about the income of my vendor?
    On the contrary i am taxed at 30% if i slip on deducting tax on my vendor payment whose taxability i have no means to know.

    SCRAP SCRAP SCRAP the most punitive tax.

    Suggestion to track: Step-1) The expender give annually by 15th April or half yearly 31st October and 30th April the details of all vendors’ PAN and amount paid particulars above 50000.00 CUMULATIVE during the year.
    Step-2) The income earner to pay tax on monthly basis before end of the month till Dec based on previous year income and jan to mar on projected income for the whole year less the tax already paid.
    Step-3) Shortfall by more than 20% be charged Interest @ 2% per month or part there of.

  4. A, ABUBAKER says:

    Sir,
    Basic exemption should be increased substantially as the prizes are gone high. Even a person who earns Rs.40,000/- per month not able save anything from his salary since he has to pay house rent school fees,provisions conveyance etc. In the circumstances, the government can increase basic exemptions at least Rs.3,00,000 to Rs.5,00,000/- for salaried classes. Suitably the deduction 80 C should also be increased from Rs.one lakh to Rs.2 lakhs. Medical reimbursement should also increased from 15,000/- 25,000/- conveyance at least Rs.3,000/- LIC payment limit to be increased from 15% to 20% of the sum assured.
    A.Abubaker
    Income tax Officer (Retired)

  5. Rajesh, Mumbai says:

    Good article.
    The most irritant and nuisance is levy of 2% and 1% cess. It should be abolished. Dividend distribution tax should be abolished. Company’s Profit are taxed at full tax and after tax payment, Dividends are given and on that dividends also, tax has to be paid as Dividend distribution tax.Is n’t it ridiculous and double taxation ?

  6. R K RELAN says:

    Sir,
    I want an querry that the interest paid on loan taken against the fixed deposit can be deducted from the interest received on these fixed deposits.
    Please reply
    Thanks

  7. Madan Mohan says:

    In Addition to the above, Exemption of Conveyance Allowance can be increased from Rs.800/- to Rs.3000/- PM and the Medical Reimbursement can also be increased from Rs.15000/- Exemption at present to Rs.25000/- PA.

  8. RAMESH KUMAR THAKUR says:

    In my opinion,there should not be any exemption to the earning people and minimize the tax slab
    Rs 1 to 2 Lac @ 1 %
    2 to 5 Lac @ 2.5 %
    5 to 7 Lac @ 3.5 % ,
    7 to 10 Lac @ 5 %
    and after 10 lac @ 7.5 %, it will helps both side.

  9. CA Sanjay Agarwal says:

    In addition to this limit u/s 194 J of Rs. 30,000, 40 A(3) of Rs. 20,000 and 80-C of Rs. 1 lac be suitably enhanced.

    Further, lower rate of NP be provided u/s 44AD for wholesellers because NP rate of 8% is too high and in almost all wholesale business, net profit @ 8% is possible.

  10. Dilip kabra says:

    Tax exemption limit should be Rs. 5 lacs then 5 to 10 10% 10 to 20 – 20% and 30%. Entire house loan interest should be exempt,as salaried person is only catogory who is paying tax honestly they should not suffer.

  11. Shrikant chandure says:

    What about the Corporate & Partnership Tax structure? It should also be stimulate on the line of Individual and HUF.

  12. ASHOK BANSAL says:

    sir,
    I have four members in my family. We have taken a mediclaim policy jointly of total premium of Rs. 39000/- by paying individually Rs. 15000/- 12000/- 6000/- & Rs.6000/- individually. The quarry is that, can we all taken deduction individually u/s. 80D of the income tax Act, 1961 or not?

    Regards.
    ASHOK BANSAL
    A-204, SHRI BALAJI RESIDENCY,
    AHINSA KHAND-2, INDRAPURAM,GHAZIABAD
    MOB:9717950610

  13. CA Anil D. Saraf says:

    In addition to this, Service Tax Slab should also be required to increase from Rs. 10.00 Lacs to Rs. 20.00 Lacs.

  14. vstaneja says:

    SUBSTANTIAL RELIEF TO GOVT. PENSIONERS
    SUPER SENIOR CITIZENS BE TOTALLY EXEMPTED FROM TAX .AT THAT AGE THEY ARE NOT LEFT WITH ANY EARNING CAPACITY. THEY HAVE REALLY PAID TXES FOR ENOUGH YEARS LET THEM DIE IN PEACE.
    SENIOR CITIZENS AND WOMEN BE PROVIDED RELIEF
    TDS BE STOPPED AS DEDUCTORS DEDUC AT THE EARLIEST ANC CREDIT TOGOVT AFTER 6MONTHS OR SO USING INVARIABLY MONEY FOR PERSONAL USE.
    VSTANEJA

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