Low income earners & entry level employees have been by far the biggest beneficiaries of the tax cuts in the last ten years.
The effective income tax rate of a person earning Rs. 3 lakh a year has dropped from 14.1 % in 2003-04 to 3.4 % now, an ET analysis indicates.
Middle income earners have also seen a substantial drop in effective tax rate. In contrast, high-income earners and the upper rich have got only marginal relief in percentage terms.
An individual with a taxable income of Rs. 8 lakh a month was paying 32.5 % tax in 2003 -04.
Despite the reforms & tax cuts,he pays 29.1 % now.
The data assumes significance in view of the nationwide debate on the possibility & desirability of higher tax rates on the very rich. It is not possible to directly compare current income levels with those prevailing in 2003-04.
Now, an entry - level worker earns Rs. 25,000 to Rs. 30,000 a month. 10 years ago,a middle-level manager was making that much. To make incomes comparable, they were adjusted for inflation & the tax payable calculated according to the income tax slabs & rates prevailing in a particular year.
For instance,ten years ago, the indexed value of an income of Rs. 10 lakh at todays prices was only Rs. 5.43 lakh. The income tax calculations did not take into account the various tax deductions.
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