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JB Mohapatra calls for inflation-adjusted tax reforms in India’s budget

The Union Budget presents an opportunity to recalibrate India's direct tax system to align with the current economic needs of middle-income taxpayers, factoring in inflation.

The income tax threshold for individuals has remained unchanged at Rs 2.5 lakh since 2014. Adjusted for an annual inflation rate of 5.7 per cent, Rs 2.5 lakh in 2014 is now equivalent to just Rs 1.4 lakh today. To maintain its real value, the threshold under the old tax regime should reasonably have been Rs 5.7 lakh. This adjustment is crucial to ensure tax levels stay consistent with 2014 standards.

Moreover, fixed deductions and exemptions have not been inflation-adjusted over the years. For instance, the Rs 10,000 deduction for savings deposit interest, set in 2013, is now worth only Rs 5,000. By 2025, it should be raised to Rs 19,450 to account for inflation.

The Rs 1.5 lakh deduction for life insurance premiums, provident fund contributions, or superannuation fund payments, last revised in 2015, is now equivalent to Rs 83,000. It should be adjusted to Rs 2.6 lakh by 2025.

The Rs 25,000 deduction for medical insurance payments, last updated in 2016, has dropped to Rs 14,750 today. The inflation-adjusted limit for 2025 should be Rs 41,000.

Inflation-indexed tax slabs and exemptions would ensure that the real value of these benefits remains constant, preserving the purchasing power of taxpayers. Many countries already implement automatic inflation indexing for tax slabs, threshold taxability, and deductions, setting a global benchmark for India to follow.


( Source : Deccan Chronicle )
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