In a bid to strengthen the middle class and unleash America’s economic comeback, President Donald Trump has unveiled 'once-in-a-generation' tax reforms.
In a bid to strengthen the middle class and unleash America’s economic comeback, President Donald Trump has unveiled ‘once-in-a-generation’ tax reforms which, he said, were “pro-growth, pro-jobs, pro-worker, pro-family, and, pro-American.” “It’s time to take care of our people, to rebuild our nation, and to fight for our great American workers,” he said while speaking at the Tax Reform Event in the US on Wednesday.
Trump’s call for a dramatic tax cut includes a larger zero tax bracket; lower tax rates for individuals, providing relief to middle class American families; lower small business tax rates, giving a boost to millions of American businesses and farms; and lower corporate tax rates, making American business more competitive.
Tax experts feel that like Americans, the Indian people – mostly the middle class — too are burdened with higher taxes, and there is an urgent need for a major tax reform. Here’s what India can learn from the US and what the FM can do to lower the tax burden on individuals:
1. The Trump Administration has proposed to consolidate the seven existing tax brackets for taxable income to only three brackets: 12%, 25%, and 35%. They also want to double the standard deduction so that more income is taxed at zero percent. For instance, the first $12,000 of income for an individual and $24,000 for a married couple will be tax-free. Thus, “a married couple — up to $24,000 — can spend their money on their family, on their children, on what they have to do,” Trump said.
Tax experts feel that although India already has only 3 tax slabs system as 5%, 20% and 30%, but considering the levels of income to which these slab applies, there is great scope for further reduction in these tax rate, specially for 2nd and 3rd slab. Alternatively the government can increase the level of income up to which these slabs will apply.
2. Regarding the proposal to double the standard deduction, tax experts feel that this is a major tax reform and India needs to do something similar. For instance, at present there are only a few tax concessions available to individual tax payers and most of the current set of tax benefits like conveyance allowance, medical reimbursement etc don’t offer any real economic benefit to the individual tax payer. Therefore, either these tax benefits should be substantially increased or they should be done away with and instead a special tax benefit like the erstwhile standard deduction be introduced.
3. Trump also wants to create a new $500 tax credit for those caring for an adult dependent or elderly loved one. “We are expanding the child tax credit because we believe the most important investment our country can make is in our children. And this is just one more critical way that we’re targeting relief to working families. In addition, under our framework, those caring for the elderly loved will receive financial relief in the form of a $500 tax credit,” Trump said.
Tax experts say these contributions would be tax deductible and grow tax free. India also allows deduction for children’s tuition fees under Section 80C, but it is included under the overall limit of Rs 1.5 lakh. Considering the increased cost of the child education and care, it is very less. Also, Indian tax laws do not provide any tax incentive for taking care of the aging parents which is need of the hour. So the Indian tax authorities can consider either enhancing the deduction under 80C or provide a separate deduction for child and parents care cost.