With Budget 2023 to be presented on February 1, the expectations of the taxpayer community and considerations by the Ministry have been doing rounds.  Recommendations on rationalising the personal tax regime have always been on top of every budget Wishlist.

Tax slabs

Tax slabs have remained unchanged since FY 2017-18, except for the optional regime introduced in FY 2020-21 with conditions attached. The highest rate today is 42.74% where income exceeds ₹ 5 crore, placing India in top 20 countries with highest tax slabs. The complexity on deciding which regime to adopt has only created an additional burden on taxpayers. Looks like many taxpayers have not given a serious consideration of opting for the new regime which offers minimal deductions, while this is directionally contrary, given the upsurge seen in corporate tax collections post bringing the tax rates down to 25%, and there is cue to bring in a few slabs with the top tax rate for most individuals, say upto ₹50 lakh getting capped at 25% and upto ₹10 lakh taxed at 5%.  

Objective should be to migrate to a simplified taxation regime with higher slabs accompanied by less deductions, which is in line with the Government policy of phasing out tax incentives, deductions and exemptions, while simultaneously rationalising the rates of tax. Also, considering the buoyancy in tax revenue and pending GST rationalisation, surcharges can be eliminated.

In one stroke, this would promote better consumption through higher disposable income and also promote better compliance.

Start-up conundrum

With moonlighting abuzz, the trends of Gen-Z in trying unconventional themes and methods to engage their interests, the start-up community of entrepreneurs now present a sizeable community that needs a legislation which fuels their ambition positively.

A top direct tax rate of 42.74% appears to be a disincentive for founders seeking to create wealth. 

In order to prevent migration of entrepreneurs and young businessmen with intellectual capital to overseas, the start-up code should be totally revised and benchmarked with the norms, wooing Indian start-ups with a simplified code up to a certain scale to operate with a low tax.  As is generally the case, an entrepreneur tends to use personal and borrowed capital to start a business, he should be incentivised with a low tax rate of not more than 15%.   This tax should also be collected in favourable means, such as on book profits and allowed to be remitted prior to March 31 of the relevant AY.  Such measures will have a host of benefits including individuals to seek the corporate route to fuel their business ambition, access to quality capital and provide gainful employment.

The scope of the start-up code should also be broad-based to cover Non-Resident individuals seeking to set up business in India. The incentive of lower taxation would inter-alia be a big sweetener to permit more returnees back to the country while also encouraging them to engage in economic value creation.

Dispute resolution

A Dispute Resolution Committee was proposed in 2021 for small and medium taxpayers, having taxable income upto ₹50 lakh and disputed income up to ₹10 lakh, to enable settlement of disputes without having to undergo the appeal process. A notification was released in April 2022 detailing the scheme.

The Government could look at broadening the limits so as to enable more taxpayers to settle disputes. Given the pendency of cases at various appellate levels, this would help in speedy resolution. Also, the committee as promised should be formed and start functioning at the earliest.

Taxpayers’ online experience

With all taxpayer activities including refund, return processing, etc. being online, it is important that these functionalities work seamlessly, as approaching a professional for assistance may not be within the power of many small taxpayers.

Hence, the glitches in the tax portal to be resolved and interface with CPC to be made effective for speedy processing of returns and resolution of grievances.

The author is Tax Leader, Nangia Andersen LLP; Sumita Ramakrishnan, Associate Director has also provided inputs