Finance ministry hints at moderate income tax rates news
06 December 2007

Mumbai: The finance ministry is likely to opt for a lower rate of income tax in view of the over 40 per cent growth in direct tax collections.

Direct tax collections grew 44.86 per cent during April-November this year to Rs1,45,053 crore.

"With improvement in voluntary tax compliance and tax administration, direct tax collections are growing by around 45 per cent. For voluntary compliance, we cannot have marginal tax rate that is too high," Parthasarthy Shome, advisor to finance minister P Chidambaram, said at a conference in the capital.
Shome said income tax rates in India were comparable to those at international level and other countries in the region. However, if voluntary compliance increased, the whole structure needed to be looked at, he added.

He also hinted at increasing the number of sources for tax payer information from the current seven.

''''Eventually, the Indian government would have to increase the number of annual information returns (AIR) sources from the present level of seven'''', He said.

He referred to the Brazilian system where third-party information on tax payer''''s expenditure is provided through more than 40 sources.

In India, the government currently gets taxpayer information from banks and other sources on high expenditure by taxpayers in seven categories.

Sources said finance ministry is getting representations from political parties and industry chambers to review personal income tax rates, which vary from 10 per cent to 30 per cent in addition to the three per cent education cess and 10 per cent surcharge on income tax for income above Rs10 lakh.

Finance minister P Chidambaram had earlier said that with improvement in voluntary compliance, he might revise tax rates.

The UPA partners are also putting pressure on the finance minister to give some relief to tax payers, especially in the election year.

Shome said, "New income tax code proposes to simplify the main income tax law as well as simplify the overall structure of the income tax. It will be a model income tax code."

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Finance ministry hints at moderate income tax rates