New Delhi: In what could discourage many people, who may be looking for an increase in personal income tax exemption limit in forthcoming Union budget, the Economic Survey on Friday asked the government to refrain from raising such exemption limits to facilitate natural growth of individual earnings and widen the taxpayers base.
It also suggested increasing property tax. The survey advocated scrapping tax benefits for savings like PPF and taxing investments at time of withdrawal saying the incentives are availed mostly by the well-offs.
It called for a review and phasing out of the Tax Exemption Raj that benefited the richer private sector and a “reasonable” taxation for better-off individuals.
The survey said that a cross-country comparison shows that India currently has the lowest number of taxpayers as nearly 85 per cent of the economy still remains outside the tax net.
“Just 5.5 per cent of earning individuals are in the tax net and the ratio should be raised to a desirable estimate of about 23 per cent,” it said.
It said that the exemption thresholds have been raised much more rapidly than underlying income growth resulting in a widening of wedge between average income and threshold limit.
“One of the low hanging fruit would be to refrain from raising exemption thresholds for the personal income tax, allowing natural growth in income to increase the number of taxpayers. In some ways, this would be reform through inaction,” the survey said.
