Your dad might have paid more tax than you


NEW DELHI: With the exemption that has made income up to Rs 2.2 lakhs tax free, finance minister has further reinforced the country’s most relaxed tax regime. Here is some news if you are still cribbing that tax slabs and rates have not kept pace with inflation. Finance ministry’s public finance statistics for 2011-12 indicates that the past five years were the best for tax payers as both the entry and peak taxable income limit are at the highest levels.

In simple terms your dad might have paid income tax on a much larger chunk of his earning than what you are paying today. Evidently demands like raising the exemption limit of income tax and increasing deductions like medical and educational allowances might reflect public sentiments but they don’t hold any statistical merit.

Sample this: In 1960 the entry level taxable income was Rs 3000 while the maximum tax was applied when income crossed Rs 20,000. Adjusting both the figures for inflation it works out that Rs 3000 of 1960 would have same value as Rs 1.4 lakhs today. Similarly Rs 20,000 will be equal to today’s Rs 9.6 lakhs. (TOI used CPI-IW to adjust the prices). The corresponding figures for entry and peak taxable income for 2012 were Rs 2 and 10 lakhs respectively for 2012. Clearly the income becomes taxable at a much higher level and the maximum tax is also applied at a relatively later stage.




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