This means if a business declares a turnover of Rs 1 crore, tax will be levied on its net income
estimated at Rs 8 lakh, despite profits being close to Rs 50 lakh.
According to officials in the Income
Tax Department, the presumptive taxation scheme, under Section 44AD of the Income-tax Act, is resulting in huge revenue slipping away because of players operating on big margins but paying very little tax. The direct tax panel also recommended allowing a revision of the next six years’ income without any fear of scrutiny or prosecution to improve compliance.
Doing away with deductions barring those related to housing, education, health, and savings is another option being explored.
The slab-rationalisation exercise will cost the exchequer Rs 70,000-80,000 crore, the panel to overhaul the Income-tax Act has estimated.
“Slab rationalisation for the salaried classes may come in the Budget
to boost consumption. It will need to be packaged with revenue-raising measures to neutralise the impact on the exchequer. Several measures including those recommended by the panel are being examined,” said a government official.
The panel, headed by Central Board of Direct Taxes member Akhilesh Ranjan, has suggested an increase in the threshold for exemption from income tax
to Rs 5 lakh a year from the current Rs 2.5 lakh.
Besides, a new slab of 35 per cent for those earning an annual income of Rs 2 crore and above has been recommended. “There are a lot of businesses such as beauty parlours and those related to event management that operate on a margin of more than 50 per cent. The scheme should ideally be for businesses with high capital investment. High-margin businesses can be carved out at a higher rate,” said another official.
“By redesigning this scheme to suit specific types of businesses or creating a separate scheme for them, compliance will improve and more taxes can be raised,” said Archit Gupta, chief executive, ClearTax.
The government is examining doing away with several deductions to make up for the revenue loss on account of the slab rejig. “Deductions for individuals for only savings, health care, education, and housing can be kept while removing the others,” said an official.
The government is likely to gain Rs 5,000-6,000 crore. The ones that could be done away with include house rent, interest earned on the savings account, etc. The Centre’s revenue foregone on account of deductions for individuals stood at Rs 97,344 crore in 2018-19.