Definition

A charge imposed by government on the annual gains of a person, corporation, or other taxable unit derived through work, business pursuits, investments, property dealings, and other sources determined in accordance with the state law A tax levied on the annual earnings of an individual is called personal income tax. Personal Income taxes are levied by the central government.

Classification of income
Salary / remuneration Income from house property Income from business/profession Gifts / charity Capital gains

Laffer Curve
The rate of taxation at which maximal revenue is generated.

Government revenue

t*

Tax rate

Progressive , Regressive and Proportional TAX

Tax imposed so that the effective tax rate increases as the economic well being increases.

The effective tax rate decreases as the economic well being increases.
The tax rate is fixed as the economic well being increases.

Budget 2007

No income tax is applicable on all income up to Rs. 1,10,000 per year. (Rs. 1,45,000 for women and Rs. 1,95,000 for senior citizens) From 1,10,001 to 1,50,000 : 10% of amount greater than Rs. 110,000 (Lower limit Rs. 1,45,001 for women and 1,95,000 for senior citizens) From 1,50,001 to 2,50,000 : 20% of amount greater than Rs. 1,50,000 + the full tax on the first slab. Above 2,50,000 : 30% of amount greater than Rs. 2,50,000 + the full tax on the first two slabs.

Budget 2008
Taxable income slab (Rs.) Up to 1,50,000 Up to 1,80,000 (women) Up to 2,50,000 (age 65 & above) 1,50,000 Rate % Nil

10

3,00,001 5,00,000 5,00,001 upwards

20 30*

*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

Personal Income Tax Brackets

Countries India Brazil China
Denmark Hong Kong Monaco Russia UK USA

Tax rate (%) 0 - 30 15 27.5 5 45

38 59 16 20 0 13 0 - 40 0 - 35

Share of tax revenue

Impact on GDP
25 million tax payers in country Income tax contribution to GDP is 3% Productivity declines as the tax rate increases Tax to GDP ratio is 7.3%

Tax / GDP ratio trend

Why low Tax to GDP ratio

Majority of tax revenues is from indirect taxes Industrial sector(25% to GDP) contributes 65% of tax receipts Service sector(58% to GDP) is marginally taxed Agriculture sector is tax free

Why is the tax-GDP ratio important?

If the new government is talking about increased public investment in agricultural, education, healthcare and so on, where is the money going to come from? Increasing private sector participation is one way of achieving this objective. By involving agriculture and service sector under tax net.

Surcharge and Cess

Surcharge A 10% surcharge (tax on tax) is applicable if the taxable income (taking into consideration all the deductions) is above Rs. 10 lakh. The limit of 10 lacs was increased to Rs. 1 crore (Rs. 10 million) with effect from 1st June 2007 for corporate assessees. Education Cess All taxes in India are subject to an education cess, which is 3% of the total tax payable.

Some countries that are not taxed

Monaco Andorra Bahamas Canada UAE

Tax Penalties
Section 142 (1) and section 143 (2) of the Indian Income Tax act 1961 lays down certain regulations regarding tax penalties. The commissioner decides on the defaulters .

Revenue
Income tax

GROSS TAX BUDGET REVISED REVENUE ESTIMATES ESTIMATE YEARS S 2005-2006 370141 66239 66239
2006-2007 442153 2007-2008 548122 2008-2009 687715 77409 98774 138314 82510 118320

Conclusion

Current

Projected

Revenue collection

Rs. 82510 crores

Rs. 87570 crores

Income tax payees

25 mn

30 mn

Should personal income tax be abolished

Contribution to the government is negligible. People will save more money. Greater industrial growth. GDP expected growth rate is 8.8% and major contributors are services and manufacturing sectors