Govt unlikely to go for income tax cut due to fiscal stress

The government is unlikely to moderate personal income tax rates for the rich due to fiscal stress on account of lower tax realisation amid slowdown in the economy, sources said.

Pressure is mounting on the government to cut personal income tax rates to boost demand, especially after the finance ministry reduced the corporate tax rate by up to 10 percentage points.

According to sources, personal income tax rate cut is difficult at this juncture due to multiple factors like slowdown in economy, lower tax realisation and subdued non-tax mop up. The government last fiscal missed its direct tax collection target, and for this financial year, it has set a higher revenue mobilisation goal of Rs 13.80 lakh crore.

The government needs higher revenue to spend on social security schemes like Ayushman Bharat, Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), PM-KISAN, and PM Awas Yojana, among others.

These schemes require funding at a time when there is already pressure on indirect tax collection due to falling realisation from Goods and Services Tax (GST) and revenue implication of massive Rs 1.45 lakh crore due to the corporate tax cut last month.

In the biggest reduction in 28 years, the government cut corporate tax rates by almost 10 percentage points as it looks to pull the economy out of a six-year low growth of 5 per cent recorded during the first quarter of the current fiscal.

Sources also said the government has already given several exemptions to taxpayers, including making income of up to Rs 5 lakh exempt from tax.

(Agencies)