08_chapter 4.pdf

CHAPTER- IV THE EXEMPTION LIMIT AND RATE STRUCTURE In this chapter, question

an attempt has been made to analyse the

relating

to

the

structure of personal

exemption

limit

and

income-tax in India.

the The

rate first

section deals with the exemption limit and second with the rate structure.

EXEMPTION LIMIT The 'Exemption Limit• is that level of income below which no tax

is

leviable1.

Exemption

limit

is

perhaps

the -most

crucial point in the literature of income-tax. For last few years,

there

economists, exemption

have

tax

been

experts

limit.

Even

hot and

discussions,

taxpayers,

today,

there

is

on a

amongst the

level

the of

strong demand,

within and outside the parliament, for raising the exemption limit

to

Rs.

50,000.2

The

Finance

Minister

is

not

considering it favourably on the plea that it may result in substantial loss of income tax revenue.3

The present endeavour is intended

to consider the demand

for raising the income-tax exemption limit,

to examine the

effect of increase in the exemption limit on revenue and number of taxpayers, and to analyse the question of how and to what extent it is possible to raise the exemption limit taking into account all the relevant considerations.

86

There are three basic factors, which constitute the criteria for fixing the minimum taxable limit or the exemption limit. They are: the taxable capacity, revenue needs of the state, and the administrative efficiency of the tax-collection machinery.

The taxable capacity of a person largely depends

upon the cost of subsistence.

Subsistence level of income

means the income necessary to provide the individual with the requisites of

life and health and protection against

habitual bodily suffering, but not with any indulgence.3 It is necessary to exempt the subsistence level of income because the marginal utility of this income for the people would be so much high that any attempt to tax this income can

cause

an unbearable

sacrifice.^

So

it

is

a

common

practice in the world of tax, to exempt a certain level of income from taxation. The subsistence level of income depends upon the level of prices.

So when the prices rise,

the level of subsistence

will also rise and to exempt the subsistence income,

level of

the "minimum taxable limit" will also require the

periodical adjustment if the "exemption limit" is fixed at very close to the subsistence level of income.

In India,

the empirical evidence reveals that the exemption limit has not been raised according to the increase in the cost of subsistence. 28,000

The level of exemption limit was raised to Rs.

for the assessment year 1993-94 (income earning year

1992-93).

At 1992-93 prices,

87

the level of exemption limit

in assessment year 1982-83 was about Rs. same

prices,

assessment

the

year

level

1978-79

was and

about

40,000 and at the

Rs.

1983-84.

37,000

in

means

that

It

the in

comparison to the exemption limit in assessment year 199394, the level of exemption limit was 42 per cent higher in assessment year

1982-83.

It

was

32

per

cent

higher

in

assessment year 1978-79 and 1983-84 (table 4.1). Hence the exemption limit has not been changed according to the

level

of

subsistence.

Today

when

the

cost

of

subsistence is very high due to the steep rise in prices, the present

level of

income-tax exemption can not be

considered sufficient.

CHELLIAH COMMITTEE RECOMMENDATION ON EXEMPTION LIMIT Recently,

the

question

of

exemption

limit

was

also

considered by the Tax Reforms Committee headed by Dr. Raja J.

Chelliah.

limit to Rs.

Recommending the 28000

for

the

increase

in the exemption

assessment year

1993-94,

the

committee observed : "The exemption limit of Rs. been fixed after limit of Rs.

28000 for individuals has

indexing for inflation the exemption

8000 for the assessment year 1976-77

(income earning year 1975-76).

The committee is aware

that the exemption limit in India for

individuals is

relatively high compared to other countries.

However,

unlike in other countries where separate exemptions are

88

given for children and other dependents, in India there is no such provision"5

The committee has manipulated the facts and figures by two ways: i)

The committee claims that the exemption limit of

Rs. 28,000 has been fixed after indexing for inflation the exemption year 1976-77

limit of Rs.

8,000

for the assessment

(income earning year 1975-76).

The task

before the committee was to fix the exemption limit for the assessment year 1993-94 93). to

(income earning year 1992-

So, the effect of inflation of 17 years 1991-92)

was

calculating the

to

be

amount

taken

of

into

minimum

(1975-76

account

exemption

for

limit.

But the committee took the inflation effect of 16 years only. It can be transpired

from the

table

4.1

indexing the exemption limit of Rs. assessment year 1976-77

that

after

8,000 for the

( income earning year 1975-76)

with the consumer price index, the exemption limit for assessment year 1993-94 comes to Rs. 30,500.

(income earning year 1992-93)

Even on the

basis

of

wholesale

price index, it amounts to Rs. 29,272. ii)

Taking the exemption limit of income earning year

1975-76,

as

base,

was

also arbitrary.

The committee

chose the year 1975-76 as base year because the level of

exemption

(assessment

limit year

89

of

Rs.

1976-77) ,

8,000, was

in

among

year

1975-76

the

lowest

exemption levels.

(Table 4.1).

Had the exemption limit been raised on the basis of the year 1981-82

(assessment year 82-83)

level,

it would have been

Rs. 40,000 for the assessment year 1993-94.

On the basis of

the level of exemption limit for assessment year 1978-79 or 1983-84, it comes to Rs. 37,000. in

assessment

year

1979-80

On the basis of the level

or

1981-82,

it

comes

to

Rs.

36,000 (Table-4.1). So,

taking the exemption

illogical.

It

limit

in

1976-77

as base was

would have been better if the average of the

exemption limits of last 20 years would have been taken as base.

For

computing

this

average

figure,

the

exemption

limit of those years should have been taken into account in which the exemption

limit was

revised.

From

1970-71 to

1991-92, the exemption limit was revised in eight years and on 1992-93 prices, the average of exemption limits of these years amounts Rs. 34,500 and it would have been a good base for

fixing

the

exemption

limit

for the assessment year

1993-94. The revenue need of state is also very important determinant of

the

level

of

the

“taxable

limit."

Today

when

our

country is passing through a serious financial crisis, any attempt to make reduction in government revenue is not advisable.

It is felt that raising the income tax limit to

Rs. 50,000 will result in substantial loss of revenue, but the Income Tax Statistics say that the apprehension of loss 90

of revenue does not hold much water. It can be seen from the Table 4.2 that about three-fourth of total taxpayers are below the income level of Rs. but their contribution in the total only about

12

per cent.

In

50,000

income-tax revenue is

1985-86,

85%

assessees were

below the income level of Rs. 50,000 and their share in tax payable was only 10.8 per cent.

The

corresponding

were 9.5% tax from 73.2% assessees in 1987-88.

figures

In 1989-90,

the share of this group of taxpayers was 12.2% while their number constituted 71 % of the total assessees under income tax. So

the

loss

of

revenue

has

no

significance

because

the

government is receiving 90% of total income-tax revenue from the tax-payers having income the

state will

continue

to

above receive

Rs.50,000. at

least

Therefore 90%

present income tax revenue even if the exemption raised to Rs.

50,000 and the loss of

10%

of

the

limit is

revenue can be

compensated by giving more attention to the higher income group by checking evasion. It is wrongly believed that raising the exemption limit will reduce

the

coverage

of

income

tax

reduction in the number of taxpayers.

by

making

substantial

In fact there is no •*

correlation between the change in exemption limit and the total number of taxpayers.

It can be visualised, from the

Table 4.3 that even after raising the exemption limit from Rs.

15,000 to Rs.

1,8000 in 1986, there was an increase of 91

14% in the total number of taxpayers, while during, the year 1987

to

1989,

when there was no change

in the exemption

limit, the increase in the number of taxpayers was around 4% only. In

1990 when the exemption

limit

was

raised

from Rs.

18,000 to Rs. 22,000, there was an increase of 7.7% in the number

of taxpayers, in comparison to 3.2% in the previous

year when there was no change in the exemption limit. more

thing

also

came

into

notice

from

the

One

previous

experience, that the effect of raising the exemption limit is

not

similar

"salaried

on

all

categories

of

taxpayers.

The

persons category" has the direct correlation

between the number of taxpayers and the level of exemption limit.

On the businessmen

the scope of evasion and

taxpayers category,

because of

some other reasons there

negative effect of raising the exemption limit. when the exemption limit was raised to Rs.

is no

In 1986,

18000 from Rs.

15,000, there was a reduction of 9.5% in salaried assessees. On

the

other

hand

there

was

an

increase

of

31%

in

important

in

businessmen taxpayers. Some

administrative

considerations

fixing the exemption limit. Tax department,

is

consumed

are

also

Much of the time of the Income by

the

assessees

falling

in

smaller income-brackets while more attention is needed for persons falling in higher income brackets to check evasion. 6

It is a common knowledge that the loss of revenue by

92

higher income group,

via evasion and avoidance,

times more than the revenue collected exempting

the

very

is several

from the small tax­

payers.

By

taxation,

the tax collection machinery can concentrate

itself on the large income group.

small

taxpayers

from

There is also a large

scale tax evasion by small shopkeepers and professionals. If the authorities can not check it then,

it is better to

exempt them completely so that tax collecting machinery can be utilised properly in handling the assessees where scope of raising revenue is better. The principal reason for the need of raising the exemption limit is to provide relief to a class of honest taxpayers, but this step will also accelerate the performance of the income tax department by eliminating a large number of small assessments and thereby enabling them to devote more and swift attention to tax collection from higher income groups. The

cost

of

collecting

taxes

should

also

be

consideration while fixing the exemption limit.

taken

into

The annual

report of Ministry of Finance shows the cost of collection of income tax is about Rs. 300 per taxpayer

and it can be

transpired from the All India Income Tax Statistics that a large number of taxpayers are paying tax less than

Rs. 300,

not sufficient even to meet the cost of collection. The cost of collecting taxes from small income groups being proportionately high, therefore the level of exemption limit has to be kept above the break-even-point between cost of collections and the revenue yield. 93

While making a cost-

benefit analysis in this regard,

due consideration should

also

the

be

given

to

the

cost

of

excessive

load

of

administrative formalities and litigation expenditure along with

time

and

energy

involved,

of

both

the

revenue

department and the taxpayers. Inflation is also relevant factor to be considered for fixing the exemption

limit from two angles.

It has been

discussed earlier that the rise in the prices, increases the cost of subsistence and require higher exemption limit.

The

other important thing is that the inflation pushes the taxpayers

into higher

income

tax

bracket

because

of

the

increase in his monetary income and also reduces the real value of exemption limit.

The taxpayers resentment against

being pushed by inflation into higher effective tax rates, even when their real

income has not changed,

has

led to

lower degree of tax compliance. Some economists are of the view has

a

very

low coverage

in

that the Indian Income Tax

comparison

to that

of

other

countries as it covers only about one per cent of our total population.

They think that the income- tax exemption limit

should not be raised, scope of the tax7.

because it will

further reduce the

While talking on the low coverage of

income tax, one should know the reason for this.8 low coverage, population

is

because the

source

agriculture,9

of

which

income is

outside the scope of central income tax.10

94

of

There is about

70%

constitutionally Secondly, we can

not

compare

countries,

a

poor

country

like

ours

developed

as the per capita income of those countries is

hundred times more than that of ours. our

with

population

is

not

able

even

A major portion of

to meet

the

both

ends.

Thirdly, a large proportion of our population is constituted by children and old persons. population

to

total

The percentage

population

developed countries.

is

less

of

than

working that

of

So the coverage of income tax should

be seen by making a relationship between the total number of taxpayers and the working population which can be brought into the tax net.

Undoubtedly in present circumstances it

is essential to widen the tax base, limit

is

not the

solution of

but the low exemption

the problem

and

it

is not

possible to earn more revenue even if the exemption limit is reduced.

The tax base should be widened by exploring some

new areas of taxation. Now, we consider the observations of on

the

Minister

question

of

raising the

is denying to

pretext or the another. the

exemption

limit,

raise the

the Finance Minister

exemption exemption

limit. limit

The on one

Responding to the demand of raising the

Finance

Minister

government is not taxing anybody earning Rs.

said

that

the

60,000 a year

if one invests in different saving schemes.11 The plea of the Minister is quite illogical and make an income of Rs. invest Rs. 38,000.

60,000,

impractical because to

tax free,

one will have to

IS IT POSSIBLE TO SAVE Rs. 38000 FROM AN

INCOME OF Rs. 68,000? 95

The members of Parliament attached to the Consultative Committee of the Ministry of Finance also suggested that the exemption limit be raised.12

Reacting to this suggestion,

the Finance Minister observed that the effective exemption limit is Rs.50,000 when one considers the standard deduction of Rs.

15,000 and exemption of Rs.

income.

13

The contention of

the

7,000 on the interest Finance Minister

is

misleading. The 'standard deductions should not be confused with the exemption limit because in fact, deduction is not

the standard

an exemption, deduction or rebate.

It is

merely the admissibility of expenditures on presumptive basis.

It is given for the expenditure incurred in earning

the salary and till the Finance Act, 1980 was passed, it was clearly written in Sec.16(1)

of Income Tax Act,

1961, that

the standard deduction is given " in respect of expenditure incidental to the employment of this

point

easily

the assessee".

understandable,

let

us

To make

consider

a

professional having gross receipts of Rs. 2,00,000 and after deducting the expenditure Rs. Rs.

28,000.

1,72,000, the income is just

Can be say that the exemption limit for that

person is Rs. 2,00,000 and not Rs. 28,000. that interest earning of Rs. not true,

The

assumption,

7,000 is universal,

especially at the income level of Rs.

is simply 4000 per

month. The editor of "THE HINDUSTAN TIMES' very correctly observed that the Finance Minister should be faulted not only for his

96

failure

in raising the

exemption

limit,

but

also

for

an

attempt to mislead public opinion.14

On the basis of foregoing analysis, it can be concluded that the demand of raising the income tax exemption limit to Rs. 50,000 is feasible, justifiable and there will be no adverse effect

on

the

collections.

coverage

of

income

tax

and

the

revenue

The increase in the exemption limit will not

merely be a measure of granting relief in the tax burden to the honest tax-payers, but also securing some relief to the income-tax administration and the revenue collection improved by checking the evasion.

may be

So the Finance Minister

should not hesitate in raising the exemption limit to Rs. 50,000.15

THE RATE STRUCTURE Formulation of

an appropriate rate

structure to strike a

balance between different needs of the economy constitutes an

important

ingredient of

a

country's

tax system.16

A

simple tax system should have a limited number of rates and . *17 its burden must be acceptable to the potential taxpayers. '

Stability in the rates is also considered as an important characteristic of a good rate structure.

In the present

environment of international trade, the tax rates should be in line with that of other countries to achieve the targets of exports and to attract foreign investment.

This section

makes an attempt to examine the personal income-tax rates, in the light of above mentioned standards.

97

CHANGES IN PERSONAL RATE STRUCTURE

THE MAXIMUM MARGINAL TAX RATE The Indian Income Tax Act taxes the individual assessees at progressive rate in order to honour the

'capacity to pay'

concept and to achieve economic equity among

individuals.

The rates of tax are prescribed every year in the Finance Act. Table 4.4, presents a picture of maximum marginal tax rates for individuals in India, Since 1951 to 1993. has a history of

exceptionally high

at

as

least

as

concerned.

far In

the

1950-51,

maximum the

rates

marginal

maximum

of tax

marginal

India

income tax rates tax

are rate

(hereinafter referred as to MMTR) which includes the super tax and surcharge,

was

income of above Rs.

78.13

per

1.5 lakh.

In

raised to 82.04 per cent.

cent

applicable

1951-52

on the

the MMTR was

During the next three years the

MMTR was stable which was further raised to 88.60 per cent on the recommendation of the Taxation Enquiry Commission in 1955.18 91.88

Finance Minister

per cent

in

again

1956-67.

In

increased 1956,

Prof.

strongly criticised the high rates of tax, "Indian Tax Reform".19 84

per cent but the

the

rates N.

to

Kaldor

in his report

In 1957-58 the MMTR was reduced to income

level

applicable, was also reduced to Rs.

on

which

the

MMTR was

1 lakh from 1.5 lakh.

For the next four years, no significant change was made in the

tax rates but

in

1962-63,

98

the

Finance Minister

once

again increased the MMTR from 84 per cent to 87 per cent. For the next two years, tax

rate which was

surcharge.

there was a minor increase in the

due

to the

change

in

the

rate

of

In 1965-66 the MMTR came down to 81.25 per cent

which was again raised to 89.38 per cent for the next three years. In

1969-70

the highest marginal

tax

rate was

reduced to

82.50 per cent which was again raised to 93.50 per cent for the year 1971-72.

The period of 1972-73

to 1974-75 was the

time of highest tax rates in the history of Indian Taxation, when the MMTR was 97.75%.

For the assessment year 1975-76,

following the recommendations of the Wanchoo Committee Report, the Finance Minister made significant reduction in the tax rates.20

The Wanchoo Committee recommended a

reduction in the tax rates at all levels bringing down the MMTR from 97.75 per cent to 75 per cent.21

The Finance

Minister fixed the MMTR at 77 per cent but the

level of

income for MMTR which was Rs. 2 lakh previously, now brought to Rs. 70,000, consequently, the burden of tax on very high income

group was

effect

on the

reduction

in

compliance22.

decreased

but

tax

burden

of middle

MMTR

played

a

major

was

no

significant

income group.

role

in

promoting

This tax

In 1976-77 the MMTR was brought down form 77

per cent on income from Rs. income

there

in excess

of one

70,000 to 66 percent on the

lakh.

From the assessment year

1977-78 to 1985-86 there was no change

in the highest

marginal tax rate and the changes shown by the are due to

99

the increase/decrease in the rate of surcharge.

In 1985,

the Finance minister made substantial reduction in MMTR and for the assessment year 1986-87, MMTR was 50 percent without surcharge.

Till the Finance Act 1992, there was no further

change in the maximum marginal tax rate. The overall results of the analysis of table 4.4 reveal that we have come

from

an

extremely high

moderate tax rate structure. unstable.

environment

to a

The rates of tax have been qu

The changes, made in the rates, were not based on

solid reasons. LEVEL OF INCOME FOR MAXIMUM MARGINAL TAX RATE While discussing the maximum marginal tax rate, the level of income at which MMTR is applicable, also assumes importance. The MMTR may lose its significance if the level of income at which the MMTR is applicable, is not reasonable.

What would

be the level of income for MMTR, depends upon the incomes of the taxpayers.

In a progressive rate structure the MMTR

should be applicable only on the creamy layers.

In India,

it seems that, there has been no policy behind the fixation of

the

level

of

income

for

MMTR.

In

applicable on the incomes above Rs. 1.5 income for MMTR was reduced to Rs.

1950-51,

lakh.

it

was

The level of

1 lakh in 1957-58.

In

1965-66, it was raised to Rs. 2 lakhs and further raised to Rs. 3 lakhs in 1968-69. reduced to Rs.2.5 lakhs.

But in the very next year it was In 1971-72,

the level of income

for MMTR was again reduced to Rs. 2 lakhs and for the year

100

1975-76 and 1976-77,

this level was only Rs.

70,000 being

the lowest level for such purposes in the 45 years history of taxation in India.

For the year 1977-78,

income for MMTR was fixed at Rs. has not been revised.

the level of

1 lakh and since then it

If we see the MMTR level of income in

1960-61 at 1992-93 prices,

it amounted to

Rs.

11.5 lakhs.

The same was 15 lakhs in 1970-71 and about 3 lakhs in 197778.

As the level of income has not been changed since 1987-

88 , it is continuously decreasing in real terms.

Table 4.5

shows that the MMTR level of income at present prices was at Rs.

2.5 lakhs in 1980-81 which had been reduced to Rs.

lakhs in 1983-84.

2

The above analysis presents a strong case

for raising the MMTR level of income.

The Raja Chelliah

Committee on Tax Reforms also suggested that the level of income

for MMTR should

be

raised

to

Rs.

2

lakhs.

Th§

committee observed : " The incomes

top marginal rate of income-tax now applies to above Rs.

about Rs.

18,500

1

lakh which

in 1967-68.

inadequate indexation,

is

equivalent

to to

This is the result of

which has raised the effective

tax rate at the lower end of the income scale. would thus seem to be a case

There

for raising the income

level at which top marginal tax rate should apply ...”.

MARGINAL TAX RATES AT PRESENT PRICES It has been seen in table 4.4 that the rates of income-tax which were very high around 1972-73, 101

have been lowered

substantially and consequently the tax burden has also been reduced.

These results are based on the changes made in

MMTR, but the changes made in MMTR alone do not give a true picture of changes in the tax burden, because: i)

The MMTR covers only a handful of assessees;(column

4 of table 4.5 ) ii) there have been changes in the level of income at which the MMTR is applicable; and iii) the table 4.4 is based on historical prices. If a study covers a very long period during which the prices are

not

stable,

any

comparison

of

the

historical prices, cannot give meaningful

figures

based

results.

on

With an

intention of removing this drawback, an attempt is made to examine the rates of income-tax at present prices. 4.7

analyses

the

marginal

tax

levels at 1992-93 prices.

rates

on

Table 4.7

different

Table income

reveals that the

marginal tax rate on the income level of Rs.

50,000,

was

below 5 per cent during the period 1950-51 to 1960-61.

It

was about 10 per cent during the period 1962-63 to 1972-73. During the period of

1973-74

to 1979-80,

the tax rate on

this income group was between 15 percent to 20 percent. the assessment

year 1984-85,

For

the tax rate on this income

level was highest at 40 percent.

Since 1986-87 to

1992-93,

the marginal tax rate on the income level of Rs. 50,000 was constant at 30 per cent.

102

The table shows that the tax rate

at this level of income in 1992-93, the

tax

rate

comparison

in

1960-61.

It

is

is 10 times more than about

7

to the tax rate in 1950-51.

times

more

in

Even in 1972-73,

when India had the highest MMTR (97.75 per cent), the rate of

tax on

percent,

the

income

level

about one-third

of

Rs.

that of

50,000, the

was

1992-93

only

tax

11

rate.

Except few years, the table shows an increasing trend in the tax rate at this level of income. shows

that

the

marginal

Rs.75,000 was below 51 to 1972-73.

tax

Column (ii) of table 4.7

rate

at

level

of

20 percent during the period from 1950-

It was between 26 per cent to 35 per cent

during the period from 1973-74 to 1979-80. year of highest tax rate income.

income

(48 per cent)

1980-81 was the at this

level of

From 1981-82 to 1985-86, the tax rate was around 45

per cent, 1987-88,

then it decreased to 30 per cent for 1986-87 & and

again

following years.

it

increased

The rate

to

42

per

cent

in

the

of tax in 1992-93 at this level

of income was about 7 times more than the rate in 1950-51. Overall, the table shows an increasing trend in the rates at the income level of Rs. 75,000. The empirical analysis based on historical prices shows a sharp decrease in the tax rate at the income level of Rs. 1 lakh.

But the analysis based on present prices does not

recognise this fact.

Column (iii) of table 4.7 reveals that

the marginal tax rate on the income level of Rs.

one lakh

was around 10 per cent during the period from 1950-51 to 1961-62.

During the period from 1967-68 to 1972-73, the tax

103

#

rate

on

this

income

level

was

around

25

per

cent.

increased to 35 per cent for the year 1973-74.

It

In the

period from 1973-74 to 1984-85, the tax rate on this income level was around 45 per cent except in the years 1977-78 and 1978-79.

The tax rate on the income level of Rs. One lakh

was 56.25 per cent in 1985-86,

which was the highest tax

rate in 45 years history of taxation.

In 1992-93 the rate

on this income level was 45 per cent, which is about four times more in comparison to the tax rates during the period from 1950-51 to 1960-63, but in most of the years,

the tax

rate has been around 45 per cent and the present rate does not register any significant decrease or rate.

The income level of Rs.

increase in the

1.5 lakh also gives almost

the some picture. •4

The marginal tax rate on the income level of Rs. 2 lakhs was around 25 per cent during the period from 1950-51 to 196263.

It increased to 55 per cent in 1970-71 and to 70 per

cent approx, in 1973-74.

In 1977-78 the rate was decreased

to 55 per cent then again increased to 68 per cent in 198485 and decreased to 50 per cent in 1986-87. rate in 1992-93

(56 per cent)

the period from 1950-51 to decreasing trend.

Although the

is more than the rate during

1962-63,

The changes

still

it registers a

in the rate on the income

level of Rs.

3 lakhs have been almost on the some line, as

were

income

on

the

level

of

Rs.

2

lakhs.

The

assessees,

having very high income (Rs. 5 lakhs and above), are the main beneficiaries

from the reduction

104

in

the

tax

rates.

The

present rates of tax on these income levels, the history of income tax in India.

are lowest in

The rates of 1993-94 **

are less than half of the tax rates in 1973-74 on income level of Rs.

5 lakhs & above.

Column

reveals that the tax rates on the lakh,

(vii)

income

of table 4.7

level

of Rs.

5

register an increasing trend up to the year 1973-74

and decreasing trend starts from 1975-76. The overall analysis of the rate structure reveals that the rates on the low income level

(up to Rs.

increased in the recent years.

75000)

have been

On the middle income group

(Rs. 1 lakh to Rs. 1.5 lakhs) there is no significant effect of the changes in rate structure. (Rs.

3

lakhs

and

above),

For the high income group

the

rates

have

been

reduced

substantially. One more important thing, that emerges from the analysis of the tax structure, is that the progressivity of tax rates in India

has

been

decreased

substantially.

In

1950-51

the

maximum marginal tax rate was 17 times of rate applicable to the income level of Rs. 50,000.

In 1960-61 the MMTR was 28

times of the rate applicable the income level Rs. It was about 8.5 times in 1971-72.

In 1979-80 the MMTR was

3.4 times of the rate on income level of Rs. ratio was decreased to 2 times in 1983-84.

50,000.

This

This reveals a

sharp decrease in the progressivity of the tax rates.

105

50,000.

THE AVERAGE AND EFFECTIVE TAX RATES People generally infer the burden of income tax by marginal tax rates.24

On the basis of maximum marginal tax rate, it

is said that the rates of income tax high.

in

India,

are very

Where one says that the tax rate is high,

one is

generally confused with the maximum marginal tax rate and average tax rate.

While the maximum marginal tax rate is

tax payable on highest slab of taxable income,

the average

rate is tax liability as a proportion of the net income.25 One more concept for the measurement of tax burden is the effective rate of tax.. The effective tax rate is the tax liability as a proportion of the gross income. system has several countries

including

exemptions India do,

If a tax

and deductions,

the marginal

as most

tax rate will

necessarily be greater than the average and effective tax rates.

So the burden of tax can not be read out by marginal

rates alone.

Real tax burden is seen more clearly in terms

of average rate of tax and the average effective rates of tax.26

Table

4.8

gives

average

income

tax

rates

in

case

of

individuals in selected assessment years at different income levels at 1990-91 prices. years

in which

structure. the period

several

The table covers a period of 20 changes were made

in

the

rate

It can be visualised from the table that between 1968-69

and

1974-75,

increased at all income levels.

106

the average tax rates

Between the period 1974-75

and 1978-79, the average tax rates on the income level up to Rs.

1 lakh,

were increased but on the

income level Rs.

2

lakhs and above, the average rates of taxes decreased due to the reduction in maximum marginal tax rate.

In the period

of 1974-75 to 1978-79, the rise in the tax rates for income level up to Rs.l lakh was continued and the average tax rate for the high income group (Rs. 2 lakhs and above) further. period

of

The period between 1978-79 and reduction

levels except

in

for the

the

tax

middle

period 1985-86 to 1988-89,

rates

income

decreased

1985-86 was the

at

all

the

groups.

income

During the

the increase in the average tax

rate continued except for very high levels of income (Rs. 5 lakhs

and above).

These changes in average tax rates were

due to the reduction in maximum marginal tax rates, of

inflation,

reduction

in

the MMTR

level

of

effect

income

and

increase in the tax rates for lower income slabs. The combined results of Table 4.7 and Table 4.8 reveal that due to the changes lower and middle

in rate structure,

income

group has

the tax burden on

increased

burden on high income group has decreased.

and the tax

In other words,

it can be said that the relief in the tax burden to high income groups has been given on the cost of

lower income

group.

REDUCTION IN TAX RATES DUE TO TAX PREFERENCES On the basis of marginal

and average tax rates,

the tax

burden in India is considered very high,2^ but some people

107

feel that the effective rates of taxation are far below the paper

rates

rebates.

on

account

of

exemptions,

deductions

They are of the view that effect of the host of

exemptions,

deductions

and

allowance

should

mentioned while measuring the tax burden.28 seems

and

necessary to

see

the

effect

of

tax

also

be

Therefore, it relief

due

to

deductions on the tax rates. Table

4.9

and

Table

4.10

give

the

preferences' on effective rates of tax.

effect

of

'tax

In 1968-69, the tax

preferences were widely used to reduce the tax burden.

The

average tax rate on the income level Rs. 25000 was 1.39 per cent which was reduced to relief. income

0.88

per cent due

to the tax

The tax relief due to deductions increased with the levels.

On the

income

level

of Rs.

10

lakhs,

the

reduction in effective tax rate was 7.65 percentage point. In the year 1974-75,

the reduction in effective tax rates

due to tax relief was much less than that of

in 1968-69.

The picture was almost same for the years 1978-79 and 198586.

In

improved.

the

assessment

year

1988-89,

the

The effective rates on lower

substantially

reduced

by

the

'tax

situation

was

income group was

preferences.

The

reduction in tax rates for middle and high income group was also very significant. The table reveals that undoubtedly, the

effective

tax

rates

had

been

reduced by

the

'tax

preferences', but still the rates of tax are high in India.

108

INCOME TAX RATES IN INDIA - A STEP TOWARDS GLOBALISATION In an environment, widely

where the trade and commerce become

internationalised,

the

countries do affect mutually.

tax

structure

will

not

be

international market,

able

as

different

If the rates of taxes in one

country are high in comparison to that of country

of

the

to cost

in other,

survive of

in

products

substantially high due to high rates of taxes.

that

may

the be

So in order

to enable the entrepreneurs to have access to international market, the tax rates should be in the line with that of in other countries.29

Here a comparison of tries is made individuals.

income-tax rates

in different coun­

in terms of maximum marginal tax rates for In 1973, the maximum marginal rate of personal

income tax was 97.75 per cent in India, Canada, U.K.

78.75 per cent in Pakistan,

82.4 per cent in

75.4 per cent in the

, 75 per cent in Japan, 71.75 per cent in U.S.A., 66.7

per cent in Australia, 66 per cent in Belgium, 60 per'cent in Turkey, 54.6 per cent in West Germany and 50 per cent in Malaysia.30

Table

4.6

shows

the

selected countries.

top In

individual 1984,

income

the tax rate

tax in

rates

in

India was

marginally higher in comparison to some other countries but it was less than the tax rates in Japan, Sweden, Denmark and Netherland.

In 1988,

the personal income-tax rate in India

was comparable with other

109

countries

and

the

situation

remained almost some in the year 1990. Now a days, become

as the international commercial relations have

closer

as

well

as

more

extensive,

the

need

of

globalisation of income tax rates becomes more significant. The government of India has also realised this fact which was being ignored previously.

The top individual income tax

rate in India which was highest in the world in 1973,

has

been reduced substantially and the recent trend is towards the globalisation of the rate structure.

RATE STRUCTURE IN INDIA : BEFORE AND AFTER THE TAX REFORMS Following

the

policy

of

'reduction

in

tax

rates

by

withdrawing the tax preferences', the Finance Minister made some changes in the rate structure of personal income tax while presenting the

budget

in

1992.

Implementing the

Chelliah Committee report with some modifications,

the

maximum marginal tax rate was brought down to 40 per cent from 50 per cent, however , no change was made in level of income

on

which

applicable.

the

maximum

marginal

tax

rate

was

The Chelliah Committee suggested;

(i) 20 per cent rate for the income in the range of Rs. 28.000 to Rs. 50,000 (ii)

27.5

per

cent

* for

the

income

in range

of

Rs.

50.000 to Rs. 2,00,000 arid (iii) 40 per cent for the income exceeding Rs. 2,00,000

110

The Committee also recommended the abolition of surcharge. For the first

income slab of Rs. 28000 to Rs.

50000,

the

recommendations of the committee are fully implemented but for the second and third slab, some modifications have been made. 27.5

Instead of a slab of Rs.50,000 to Rs. per

cent

rate,

as

suggested

by

the

2,00,000 with Committee,

the

government imposed 30 per cent rate on the income in the range of Rs.

50,000 to 1,00,000 and 40 per on the income

above Rs.

1,00,000.

The rate of

untouched,

the only change done in surcharge

income level has been enhanced

surcharge also remained

from Rs.

is that the

75,000 to, Rs.

1,00,000.

Although, the recommendations of the Raja Chelliah Committee are not implemented fully,

yet there are reductions in the

tax rates, at least for the higher income group. shows that there

Table 4.11

is 10 percentage point reduction

rates on the income level of above Rs. 30,000. withdrawal of a number of deductions, income range up to Rs.

in tax

Due to the

the assessees in the

1,00,000 may not be benefited much,

but the assessees in the income group of Rs.

1,00,000 and

above will certainly be benefited.

RESTRUCTURING THE TAX RATES - AN INCOMPLETE TASK In the light of foregoing analysis, task of restructuring the tax rates,

it

is clear that the

is still

incomplete.

No doubt, the present rate structure is much better than the

111

previous one, yet, it really good, 4.12). the

a rate schedule has been suggested

(Table

As already has been discussed in the first part of

chapter,

50,000.

it is not free from defects and to make

the

exemption

limit

must

be

raised

For the income range of Rs. 50,000 to Rs.

the rate of tax should be 2 0 per cent.

to

Rs.

1,00,000

A 30 per cent rate

should be prescribed for the income range of Rs. 1,00,000 to Rs. 2,00,000.

The maximum marginal tax rate of 40 per cent

should be applicable on the income above Rs. the surcharge should be abolished.

2,00,000 and

The rate structure may

be reviewed after every five years and no change should be made in between.

112

NOTES AND REFERENCES

1.

Definition given in All India Income-Tax Statistics for the assessment year 1988-89 at p.iii.

2.

Record of the Lok Sabha Budget debates 1992 and Budget debates 1993, provided by Lok Sabha Library.

3.

Mill, J.S., Principle of Political Economy. Peoples Edition, Longman Green & Co., London, 1896, p486.

4.

Rao, A.K. Personal Income Taxation in Publication, Allahabad, 1987, p.109.

5.

Chelliah Committee Report (Intrim) 1991, Para 6.20 p.51.

6.

Budget speeches of Finance Minister, Union Budget 195354.

7.

Jain, A.K. Taxation of Income in India, p. 155.

8.

Chahal S.S.& Raj Singh "Raising the Income-Tax exemption limit, paper presented at 46th All India Commerce Conference. Dec. 29-31, 1992.

9.

Economic Survey 1991-92.

10.

The constitution of India, seventh schedule.

11.

The Hindustan Times, March 8, 1993.

12.

Financial Express, April 22, 1993.

13.

The Hindustan Times, April,22 1993.

14.

"Raise Exemption Limit" Times" April 23, 1993.

15.

Raj Singh, Raising Income Tax Exemption Limit. Part I & II. Financial Express, Nov 16 & 29, 1992.

16.

Jain, A.K., Taxation of Income in India, p.142. Raj Singh, Corporate Taxation: An International Comparison, Financial Express, May 11, 1991. p.7.

17.

Chelliah Committee Report Dec.1991) Para 5.3 (a) p.43.

18.

Report of the Taxation Enquiry Commission P. 134.

19.

Kaldor, N. Indian Tax Reforms: New Delhi, 1956 p.10-11.

113

editorial

on

Tax

of

India,

the

Chugh

"Hindustan

Reforms

(Intrim

Ministry of Finance,

20.

Finance Minister Budget speech, Union Budget, 1974.

21.

The Wanchoo Committee Report.

22.

Finance Minister Budget Speech, Union Budget 1976.

23.

Chelliah Committee Report (Intrim) Para 3.12 p.21

24.

Raj Singh "Income-Tax Rates are not responsible evasion". Financial Express, June 3, 1991, p.7.

25.

Ibid.

26.

Pandey, T.N., "How the highest taxed nation pampers the rich" Indian Express, Feb.24, 1992. p.13.

27.

Palkhivala, N.A.,

28.

Salve, N.K.P., "Is India the highest taxed nation? Pandey, T.N. "How the highest taxed nation pampers the rich" Indian Express, Feb.24, 1992. p.13. Raj Singh; Income tax rates are not responsible for evasion, Financial Express, June 3, 1991 p.7.

29.

Verma, Sushil.K., "Reorientation of Direct Taxes Administration to meet the demand of Globalisation" an unpublished paper .presented at International Tax Conference, Nov. 6-7, New Delhi p.2.

30.

Federation of Indian Chamber of Commerce and Industries, Simplification and Rationalisation of Income Tax Law, Federation House, New Delhi, p.6-10.

for

The Highest Taxed Nations, 1965.

114

Table - 4.1

Exemption Limits for Individuals (1971-1993)

Income Earn­ Monetary Exemption limit ing Years (Current Prices) Rs. 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-78 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93

5000 5000 5000 5000 6000 8000 8000 10000 10000 10000 12000 15000 15000 15000 15000 18000 18000 18000 18000 18000 22000 22000 28000

Consumer price Real Exemption Index of Income Limit earning year (1992-93 prices) Base 1960-61=100) Rs. 186 192 207 250 317 313 301 324 330 360 401 451 486 547 582 620 674 736 805 853 951 1080 1193

32070 31070 28820 23870 22580 30490 31710 36820 36040 33140 35700 39680 36820 32720 30750 34640 31860 29180 26680 25180 27600 24300 28000

SOURCE : Monetary Exemption Limits as given in the Finance Acts Real Exemptions are computed on the basis of Consumer Price Index

115

Table - 4.2 Taxpayers having Income below Rs. Total Income Tax Revenue.

50,000 and

No. of Taxpayers below Income Rs. 50,000 (in per cent)

Year

their contributi

Tax Payable (in per cent)

1985-86

84.9

10.8

1986-87

77.3

11.6

1987-88

73.2

9.5

1988-89

71.0

11.9

1989-90

70.7

12.2

SOURCE : All India Income Tax Statistics.

Table - 4.3 Effect of Rise in Exemption Limit
Assessment Year

Exemption Limit (in Rs.)

1985-86

15000

54.86

1986-87

18000

62.61

14.0

1987-88

18000

65.25

4.2

1988-89

18000

68.11

4.4

1989-90

18000

70.27

3.2

1990-91

22000

75.65

7.7

80URCE

No. of Taxpayers (in lakhs)

-

: Income Tax Department Performance Statistics.

116

TABLE 4.4

Maximum Marginal Tax Rates for Individual Assessees From 1951 to 1993. (per cent)

Financial Year

MMTR

Financial Year

MMTR

1950-51 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73

78.13 82.04 82.04 82.04 88.60 91.88 84.00 84.00 84.00 84.00 84.00 87.00 88.04 88.13 81.25 89.38 89.38 89.38 82.50 82.50 93.00 97.05

1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94

97.75 97.75 77.00 77.00 66.00 69.00 69.00 72.00 66.00 66.00 66.00 67.50 61.88 50.00 50.00 52.50 52.50 54.00 56.00 56.00 44.80

SOURCE

:

Finance Acts for relevant years.

MOTE : 1) The maximum marginal tax rates given in the table include incometax, super tax (until 1964-65) and surcharge if any. 2) Between 1957-58 to 1968-69, there were separate rates for earned and unearned incomes, the rates given in the table are those which were more between the two.

117

Table 4.5

Maximum Marginal Tax Rates (MMTR) Tor Individual Assessees, Income level Tor (WTR and Assessees under MMTR, (From 1951 to 1993) Assessment .year

(pFT cent) * 1

Income level for MMTR (Historical prices >Rs. 2

Income Level For MMTR (Present prices) (1992-93) Rs. 3

Number of assessees under MMTR in in percentage 4

1960-61

84.00

1,00,000

11,50,000

0.80

1970-71

82.50

2,50,000

15,00,000

0.73

1975-76

77.00

70,000

2,56,000

2.40

72.00

1,00,000

2,50,000

0.66

1981-82

66.00

1,00,000

2,25,000

0.57

1982-83

66.00

1,00,000

2,20,000

0.69

1983-84

66.00

1,00,000

2,00,000

0.67

1984-85

67.50

1,00,(XX)

1,87,000

N.A.

1985-86

61.88

1,00,000

1,77,000

1.45

1986-87

50.00

1,00,000

1,68,000

1.59

1987-88

50.00

1,00,000

1,56,000

2.39

1988-89

52.50

1,00,000

1,45,000

3.14

1989-90

52.50

1,00,000

1,39,000

3.91

j

1980t81

(* including surcharge, if any) SOURCE : Column 1 4 2 from Finance Acts for relevant years, Column 3 computed from whole-sale price Index and Column 4 computed from All India Income Tax statistics.

Table 4.5

Maximum Marginal Tax Rates (MMTR) for Individual Assessees, Income level for MMTR and Assessees under MMTR, (From 1951 to 1993)

Assessment year

MMTR (per cent) * 1

Income level for MMTR (Historical prices)Rs. 2

Income Level For MMTR (Present prices) (1992-93) Rs. 3

1960-61

84.00

1,00,000

11,50,000

1970-71

82.50

2,50,000

15,00,000

1975-76

77.00

70,000

2,56,000

1980-81

72.00

1,00,000

2,50,000

1981-82

66.00

1,00,000

2,25,000

'2-83

66.00

1,00,000

2,20,000

84

66.00

1,00,000

2,00,000

-85

67.50

1,00,000

1,87,000

1985-86

61.88

1,00,000

1,77,000

1986-87

50.00

1,00,000

1,68,000

1987-88

50.00

1,00,000

1,56,000

1988-89

52.50

1,00,000

1,45,000

1989-90

52.50

1,00,000

1,39,000

(* including SOURCE

:

surcharge,

if any)

Column

1 & 2 from Finance

Column

3 computed

from whole-sale

Column

4 computed

from All India

118

Acts

for relevant price Income

years,

Index

and

Tax statistics.

TABLE

4.6

Top Individual Income Tax Rates in Selected Countries.(per cent) Country

1984

1988

Australia

60

49

49

Canada

51

45

45

Denmark

73

68

68

France

65

57

57

India

67.5

52.5

54

Italy

65

60

60

Japan

88

76

76

Netherland

72

70

70

Sweden

82

75

75 » '

U.K.

60

60

60

U.S.A.

55

33

33

West Germany

56

56

53

SOURCE

:

Michael J. Boskin, World Tax Reform San Francisco, California.

119

1990

ICS

Press,

Table 4.7

Marginal Tax Rates on Different Income Levels at 1992-93 prices.

Assessment Year

1950-51 1960-61 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-78 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94

SOURCE

Income Levels (in Rs.) ....................................... 50000 75000 100000 150000 200000 (iv) (v)

4.69 3.00 11.00 11.00 11.00 18.70 18.70 16.50 18.70 16.50 17.25 20.70 30.00 27.50 33.00 33.00 39.38 33.75 30.00 30.00 30.00 30.00 30.00 30.00 30.00 20.00

10.94 6.00 18.70 18.70 18.70 26.45 34.50 33.00 33.00 27.50 28.75 34.50 48.00 44.00 44.00 44.00 45.00 45.00 30.00 30.00 42.00 42.00 43.20 40.00 44.80 30.00

10.94 10.80 25.30 25.30 26.45 34.50 46.00 44.00 44.00 33.00 34.50 46.00 48.00 44.00 44.00 44.00 56.25 50.63 40.00 40.00 42.00 42.00 43.20 44.80 44.80 30.00

18.75 16.80 33.00 44.00 46.00 57.50 69.00 55.00 55.00 44.00 46.00 57.50 60.00 55.00 55.00 60.50 61.88 56.25 40.00 40.00 52.50 52.50 54.00 56.00 56.00 44.80

25.00 21.60 55.00 55.00 57.50 69.00 69.00 66.00 66.00 55.00 57.50 57.50 66.00 60.50 60.50 63.25 67.50 61.88 50.00 50.00 52.50 52.50 54.00 56.00 56.00 44.80

: Value of Income Levels for concerned years are computed on the basis of Consumer Price Index and Rates are computed from the Finance Acts of relevant years.

120

300000

25.00 48.00 55.00 66.00 69.00 80.50 86.25 77.00 77.00 60.50 63.25 69.00 72.00 66.00 66.00 66.00 67.50 61.88 50.00 50.00 52.50 52.50 54.00 56.00 56.00 44.80

500000 (vii)

43.75 66.00 71.50 82.50 86.25 92.00 92.00 77.00 77.00 66.00 69.00 69.00 72.00 66.00 66.00 66.00 67.50 61.88 50.00 50.00 52.50 52.50 54.00 56.00 56.00 44.80

Table - 4.8 Average Income Tax Rates in Case of Individuals in Selected Assessment Years at Different Income Levels (1990-91 prices). (per cent)

Average Real Gross Income

1968-69

25,000

1.39

3.58

4.62

0.32

2.67

30,000

2.46

4.17

5.45

1.57

5.15

40,000

4.27

5.56

7.12

5.04

10.12

50,000

5.78

7.25

8.79

8.51

15.08

75,000

8.76

12.83

13.96

15.06

20.78

1,00,000

12.16

18.10

19.89

20.41

26.22

2,00,000

26.29

36.46

33.02

24.18

37.62

5,00,000

45.93

60.76

54.38

47.41

46.19

10,00,000

57.30

72.90

63.99

51.72

49.71

15.23

14.74

16.48

15.43

21.78

1974-75

1978-79

1985-86

1988-89

Average Income Tax Rates=(Tax Paid as a percentage of net income) SOURCE : Chelliah Committee Report on Tax Reforms.

121

Table - 4.9 Effective Income Tax Rates in Case of Individuals in Selected Assessment Years at Different Income Levels (199091 prices). (per cent) Average Real Gross Income

1968-69

25,000

0.88

3.20

4.29

0.00

0.00

30,000

1.84

3.79

5.05

1.21

1.76

40,000

3.56

5.09

6.57

4.60

5.42

50,000

5.08

6.58

8.10

7.99

9.08

75,000

8.15

11.92

13.22

14.53

14.72

1,00,000

10.88

17.00

18.91

19.75

" 20.22

2,00,000

21.54

34.58

31.63

33.45

31.89

5,00,000

38.42

58.62

53.16

46.89

43.01

10,00,000

49.64

70.97

63.26

51.29

45.99

13.00

13.89

15.69

14.32

16.27

1974-75

1978-79

1985-86

1988-89

Effective Income Tax Rates= (Tax Paid as a percentage of gross income)

SOURCE : Chelliah Committee Report on Tax Reforms.

122

Table

4.10

Tax Relief Due to Deductions as a Percentage of Gross Income in Selected Assessment Year at Different Income Level (199091 Prices).

(percentage

Average Real Gross Income Rs.

1968-69

1974-75

1978-79

1985-86

points)

1988- 89

25,000

0.51

0.38

0.33

0.32

2. 74

30,000

0.62

0.38

0.40

0.36

3. 39

40,000

0.72

0.47

0.55

0.44

4. 69

50,000

0.70

0.67

0.69

0.52

6. 00

75,000

0.61

0.91

0.74

0.63

6. 06

1,00,000

1.28

1.10

0.98

0.66

6. 01

2,00,000

4.75

1.87

1.40

0.73

5. 73

5,00,000

7.51

2.14

1.22

0.52

3. 17

10,00,000

7.65

1.93

0.73

0.43

3. 18

Average

2.23

0.85

0.79

1.11

5. 51

SOURCE

: Chelliah

Committee

123

Report

on Tax Reforms.

Table - 4.11

Personal Income-Tax Rate Structure in India

Before (Assessment

Net Income Range Rs.

Tax Reforms Year 1992-93)

After Tax Reforms Year 1993-94)

(Assessment

Rates of Income Tax (in per cent)

Net Income Range Rs.

Rates of Income (in per cent)

upto 22,000

Nil

upto 28,000

Nil"

22,000

- 30,000

20

28,000

- 50,000

20

30,000

- 50,000

30

50,000

- 1,00,000

30

50,000

- 1,00,000

40

1,00,000

1,00.000

Surcharge

SOURCE

and above

Acts of relevant

40

50

: 12 per cent of income tax if income exceeds Rs. 75,000

: Finance

and above

years.

124

Surcharge

: 12 per cent of income tax if income exceeds Rs. 1,00,000.

Table - 4.12

A Suggested Tax Rate Schedule

Present

Suggested

Rate Schedule

Net Income Range

Rates of Income Tax (in per cent)

Rs.

Upto 28,000

Nil

Rate Schedule

Net Income Range

Rates of Income (in per cent)

Rs.

Upto 50,000

Nil

28,000 - 50,000

20

50,000 - 1,00,000

20

50,000 - 1,00,000

30

1,00,000

- 2,00,000

30

1,00,000

40

2,00,000

and above

40

and above

Surcharge

SOURCE

: 12 per cent of income tax if income exceeds Rs. 1,00,000.

: Finance Act of relevant

years.

125

Surcharge

: Nil.