‘Raise maximum rate of I-T to 35 per cent’

Santosh Tiwary

New Delhi, Dec 2: Former director of the National Institute of Public Finance and Policy (NIPFP) and member 10th finance commission Dr Amaresh Bagchi feels that personal income-tax slabs should be restructured and maximum marginal rate of 30 per cent should be raised to 35 per cent for people in the higher income bracket.

Talking to The Finacial Express, Dr Bagchi said that the government’s option for generating additional resources through tax measures in the Budget for 2002-03, was very limited.

He said that corporate tax rate of 35 per cent was quite reasonable. Dr Bagchi, however, stressed that, “In principle, the highest rate of corporate tax and income-tax should be the same. And therefore, the maximum marginal rate of income-tax should be raised to 35 per cent”.

The 35 per cent rate should be applied only to the income above Rs 5
lakh and there should be no surcharge, he said.

Dr Bagchi added that the 30 per cent rate should be applied to the income above Rs 3 lakh, income between Rs 1.5 lakh and Rs 3 lakh should attract 20 per cent, and below Rs 1.5 lakh 10 per cent.

At present, 10 per cent rate is applicable to the income between Rs 50,000 and Rs 60,000, 20 per cent to income between Rs 60,000 to Rs 1.5 lakh, and 30 per cent to income above Rs 1.5 lakh.

Though Dr Bagchi favoured higher tax rate for higher income bracket, he stressed hat the tax exemption on small savings should not be removed. “There is a basic rationale for giving tax exemptions to savings to neutralise against the savings generated by tax on income,” he said.

Dr Bagchi said that concessions on savings in specified forms should be strengthened while raising the tax rate in the upper bracket.
He added that there was a lot of scope for rationalisation and simplification of the direct tax structure.

Dr Bagchi said that there was no logic for reducing the tax rate on capital gains tax from 20 per cent to 10 per cent in the Budget for 2002-03, and it should be raised. He added that the definition of capital gains tax should also be strengthened.

He also said that removal of tax exemption to the charitable institution should be done in a rational way. “Though tax exemption to these institutions provides a good way to escape income-tax, we should take care that genuine charities are not hurt while removing exemption given to them,” said Dr Bagchi.