
ASSOCHAM Urges Reduction of Income Tax Rates in Budget 2025
Jan 25
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As the Union Budget 2025 approaches, there’s a lot of anticipation surrounding Finance Minister Nirmala Sitharaman’s speech on February 1. Industry experts and trade associations have already started voicing their expectations, and one recommendation that stands out is the call for a reduction in personal income tax rates. The Associated Chambers of Commerce and Industry of India (Assocham) has strongly advocated for these changes in their Pre-Budget memorandum. But why exactly is this so important? Let’s break it down.
Income Tax Rates:
Why Are High Personal Tax Rates a Concern?
India’s personal income tax rates have been causing some concern for individuals and businesses alike. Currently, those in the highest tax slab pay up to 42.744% under the old tax regime and 39% under the new regime. When compared to other countries, these rates seem excessive. For instance, in Hong Kong, the rate is just 15%, and in Sri Lanka, it’s 18%. Let’s look at some key global comparisons:
Hong Kong: 15%
Sri Lanka: 18%
Bangladesh: 25%
Singapore: 22%
With such stark contrasts, it’s clear that India’s personal income tax rates are not globally competitive. This can make it harder for individuals to comply with tax laws, leading to tax evasion and, ultimately, lower tax revenue for the government.
Impact on Businesses and Tax Compliance
The disparity between corporate and personal tax rates isn’t just a matter of numbers, it has a direct impact on how businesses function. Many individuals are opting to restructure their businesses, shifting from sole proprietorships to company formats, to take advantage of lower corporate tax rates. This decision, while financially beneficial, adds complexity and administrative burden to the tax system.
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Complications in India’s Tax System
Another issue highlighted by Assocham is the increasing complexity of India’s tax structure. The dual tax regimes, which vary based on income sources, and the different surcharge rates based on income and capital gains, have created confusion for many taxpayers. This complexity makes it harder for individuals, especially those in higher income brackets, to plan their finances effectively.
This is where our professional services such as Tax Planning, Accounting Outsourcing, and Income Tax Audit can simplify the process, ensuring that you remain compliant while optimizing your tax strategy.
Streamlining the Process
To make the tax system more transparent and easier to navigate, Assocham has recommended reducing personal income tax rates and aligning them more closely with global standards. This would not only provide immediate relief to taxpayers but also encourage better compliance and reduce the rates of tax evasion.
What Is Assocham Proposing for Budget 2025?
Assocham’s key proposal is clear: lower income tax rates, particularly for individuals in higher income brackets. This is seen as a step toward ensuring greater fairness and equity in India’s tax structure. But will the government take these recommendations seriously?
A Positive Step for Economic Growth
The reduction in tax rates could also drive economic growth. Lower personal tax rates would encourage higher savings and investments, ultimately benefiting both individuals and businesses. Whether you’re operating a Private Ltd Company or a Sole Proprietorship, adjusting tax strategies can help maximize your resources and fuel growth.
Additionally, if you’re considering any changes to your business structure, services like Company Registration, LLP Registration, and MSME Registration can provide the guidance you need to make informed decisions.
What Can We Expect from Budget 2025?
As February 1, 2025, draws closer, all eyes are on the upcoming Union Budget. Taxpayers are hopeful that the government will consider these proposals and introduce much-needed reforms. A simpler, fairer tax structure could benefit not only individuals but also businesses across India.
Whether the government decides to implement these changes or not, it’s clear that the demand for tax reforms is growing stronger. For those looking to prepare ahead, Tax Filing Services and GST Registration can ensure that you stay ahead of the curve, no matter the changes that come with the budget.
Stay tuned as we continue to follow Budget 2025 and bring you updates on how these changes might impact your finances.