Cengao India suggests for abolition of Income Tax. However if abolision is not possible at least Pensioners should be exempted from payment of income tax.

Last year,finance minister Arun Jaitley Announced a reduction in tax rate in the income tax slab of Rs 2.5 lakh to Rs 5 lakh to 5 per cent from 10 per cent in his budget speech without enhancing the exemption limit up to 5 lakhs (at least for senior citizens).  Therefore, it's natural, people will hope for a announcement in budget 2018 for enhancement of exemption limit up to 7 lakhs for all and 10 lakhs for pensioners. Cengao India has already suggested for abolition of Income tax on the following reasons. 

Income tax. It baffled even the great Albert Einstein, who declared that "The hardest thing in the world to understand is income taxes." But can the complexity of Income Tax alone explain away the fact that only 1.7% of our population has taken the trouble to pay it? Or the fact that only 0.25% declare taxable income over Rs 50 lakh and just another 6.28% taxable income between Rs 2.5-25 lakh? In 2015-16, the most recent financial year for which the Central Board of Direct Taxes has shared data, income tax revenues, in fact, fell by Rs 3 lakh crore - to Rs 1.88 lakh crore from Rs 1.91 lakh crore. Ahead of the last full-fledged budget by the Modi government before general elections, Anjana Menon, writing in the Economic Times, is categorical in dismissing the tax as a dysfunctional tax and demanding its abolition. "Scrapping personal income taxes, on the other hand, will end both covert and thrifty spending. It will free up incomes that could find their way to services ranging from travel to home improvement. It will also give a fillip to consumables from groceries to gadgets. The knock-on effect will create a demand for goods and services that will bolster economic activity. Ring-fenced with tighter GST monitoring, the government might have a winning formula," Cengao India  suggests - Dear Arun Jaitley, personal income tax is dysfunctional, just scrap it".

According to data from the Central Board of Direct Taxes, only 2.05 crore Indians or 1.7 per cent of 120 crore Indians paid taxes in 2015-16. Break that up further and you see that 4.6 per cent of total taxpayers paid a whopping 62.34 per cent taxes collected, while 89.86 per cent paid just 23.73 per cent of total taxes. The remaining 5.5 per cent paid 13.92 per cent of taxes.

If around 11 per cent of taxpayers pay a gargantuan 76.26 per cent of taxes, it is because they earn disproportionate share of income. Tax payers with a declared income between Rs 1 and Rs 2.5 lakh make a whopping 93.3 per cent of total tax payers in India.

Despite the fact that India added more tax payers in 2015-16, up from 1.91 crore tax payers in 2014-15, it didn't register an increase in tax revenue. In fact, the tax collected in 2015-16 was to the tune of 1.88 lakh crore, lower than the Rs 1.91 lakh crore collected in 2014-15.

Big question: Why do only 1.7 per cent of Indians pay taxes?

The answer lies in the fact that 90 percent of Indians don't fall in the tax bracket as they earn less than Rs 2.5 lakh a year, and hence are exempt from paying income tax.

Plus, there are several categories of income earners who don't have to pay tax even if their annual income is more than Rs 2.5 lakh. These include farmers and some categories of non-salaried professionals who and pay lower taxes. Therefore Cengao India suggests for abolition of Income Tax. However if abolision is not possible at least Pensioners should be exempted from payment of income tax.