Where does India stand in the world in comparison to personal tax rates?

Indian Scenario:

India follows a progressive tax slab rate system for individual taxpayers, where the tax rate is determined based on various factors:

One) Age groups: Normal taxpayers (below 60 years of age), senior citizens (above 60 years but less than 80 years of age) and very senior citizens (above 80 years of age) where senior citizens are eligible for higher basic exemption level for taxable income Let’s enjoy

b) Different levels of individual income where higher income-earners are subject to higher tax rates.

C) In addition, surcharge on tax is applicable depending on the income level.

D) In addition, a Health and Education Cess is levied at the rate of 4% on the tax. plus overload.

I) There are also two tax regimes applicable to individuals which are the existing tax regime and the concessional tax regime. In case of concessional tax regime, certain deductions/exemptions have to be given up by the individual and hence, comparatively lower tax rates are applicable.

The above is summarized in the table below:

The maximum marginal tax rate for a person earning taxable income (excluding capital gains) of more than INR 50mn is 42.744% (i.e., 30% tax rate + 37% surcharge + 4% cess). This is a very high rate of tax.

The Union Budget 2014-15 increased the basic exemption limit from Rs 200,000 to Rs 250,000. This was the same year when the deduction limit under section 80C of the Income Tax Act, 1961 (Act) was increased from INR 100,000 to INR 150,000. Section 80C of the Act allows deduction for a number of expenses/investments like Employees’ Provident Fund contribution, tuition fee for children, life insurance premium paid etc., which are basic and quite popular among individual taxpayers. Therefore, a substantial period has elapsed since the original exemption limit and section 80C deduction limit were re-evaluated.

Even the notified Cost Inflation Index (CII) has increased from 240 (FY 2014-15) to 331 (FY 2022-23). CII is a tool to measure inflation over the years and is used for capital gains taxation.

global scenario

Taxes are a very important factor in the development of the country. It enables a country to reduce its economic expenditure on infrastructure, health and education of its citizens. There are many factors that help countries develop an efficient tax system – such as population size and composition, gross domestic product (GDP) ratio, macro-economic policies, administrative considerations, inflation rates, etc.

While some countries follow a uniform tax-rate system, most countries such as the United States, Canada, Japan, etc. follow a progressive tax slab rate system. Tax rates also differ depending on residence, marital status, source of income, etc. While countries in the Middle East have no personal income tax, other countries have it in the range of 10% to 60%.

Below is a glimpse of personal income tax rates around the world:

India 42.74%

Canada 33%

US 37%

France 45%

Finland 56.95%

Germany 45%

UK 45%

China 45%

Hong Kong 15%

Japan 55.97%

Singapore 22%

Australia 45%

(These are indicative rates and may vary depending on the facts of each case)

The maximum tax rate in India is almost at par with other countries across the world. However, the basic exemption limit, deductions, exemptions etc. differ from country to country.

The brunt of personal tax rates has a direct cost on an individual’s income. Reduction in personal taxes helps in increasing the purchasing power of individual taxpayers.

With the comparatively high inflation rates over the years, it would be appropriate to increase the basic exemption limit in the upcoming budget to bring in the much needed tax sop for individual taxpayers.

Author: Deepashree Shetty, Associate Partner – Tax & Regulatory Services, BDO India