The Plan also suggests doing away with income tax on dividends and reducing corporate tax rate to 30 per cent from 35 per cent to bring it in line with personal income tax rate.
Speaking to FE, Planning Commission officials pointed out that several exemptions and deductions currently provided in the Income Tax Act had become redundant and were not in harmony with the existing tax regime. The Tenth Plan attempts to remove the inequities and move away from a system which favours debt financing, officials added.
The Tenth Plan proposes, to replace standard deduction provided to salary earners by a standard flat rate. This would broaden the tax base, increase compliance and over the time lead to increased income tax revenue.
While the Tenth Plan suggests that the maximum marginal rate of personal income tax rate should be retained at 30 per cent, it adds that the income at which it is applied could be raised.
It further observes that the 10 per cent and 20 per cent slabs were too much narrow and should be broadened by raising the income threshold at which 20 per cent rate begins to apply.
The Plan has some welcome suggestions for corporate income tax payers. It proposes doing away with income tax on dividends as it leads to double taxation. It also talks about harmonising personal and corporate income taxes. The Plan suggests that corporate tax rate should be reduced to 30 per cent to bring it at par with personal income tax levels.
If corporate income tax rate is higher than personal income tax rate, it tends to lead to tax-induced non-corporatisation of business sector and less organised business activity, the Plan observed.
Removal of various income tax concessions provided under the Income Tax Act has also been suggested by the Plan. It has proposed abolishment of tax concessions under section 80 CCC, 88, 80 L and 10(15). Tax concessions under section 80 D, 80 DD, 80 DDB and 80 E should be given in the form of tax credit rather than deduction from income, it suggested.
It added that the rollover provision relating to capital gains under section 54, 54 B, 54 D, 54 E, and 54 E B should be removed.