Budget 2020: Major income tax rate changes over the last 50 years
Run-up to tomorrow's Budget
Year: 1971, under FM Yashwantrao Chavan
Effective tax rate: 93.5%
Why the tax rate was changed: Would you be okay with earning Rs 100, only to keep Rs 6.50 in your pocket? Imagine...
Year: 1974, under FM Yashwantrao Chavan
Effective tax rate: 77%
Why the tax rate was changed: The Direct Tax Enquiry Committee had recommended this, with the aim of reducing tax evasion.
Year: 1976, under FM Chidambaram Subramaniam
Effective tax rate: 66%
Why the tax rate was changed: Promoting more tax compliance was the objective.
Year: 1984, under VP Singh
Effective tax rate: 61.9%
Why the tax rate was changed: Providing relief to fixed income groups; better voluntary compliance and reporting that would also cover for revenue losses, if any.
Year: 1985, under VP Singh
Effective tax rate: 50%
Why the tax rate was changed: A significant one, this Budget aimed to create an environment of growth, productivity and savings; make the personal income-tax structure simpler and reasonable. Other objectives included maintaining progressivity, eliminating a large number of small assessments and providing relief particularly to low- and middle-income groups.
Year: 1992, under Manmohan Singh
Effective tax rate: 44.8%
Why the tax rate was changed: This change took into account recommendations of the Chelliah Committee. Basis these, the aims were to make tax compliance voluntary, bring in a more effective tax structure that had low tax rates, narrower spread between entry rate and maximum marginal rate and minimum tax incentives.
Year: 1997, under P Chidambaram
Effective tax rate: 30%
Why the tax rate was changed: This was Chidambaram's 'Dream Budget', rightly so as it laid out the groundwork for major tax reforms. Moderate tax rates, a wider base and better compliance all made for a solid taxation policy. The Budget also looked to keep rates at par with those in other developing Asian economies, prevent tax evasion, foster savings and growth and finally, increase compliance.
Year: 2019, under Nirmala Sitharaman
Surcharge: 37%, cess: 4% (note that there are multiple surcharge rates, the highest being 37%, levied on income exceeding Rs 5 crore)
Effective tax rate: 42.7%
Why the tax rate was changed: Finally, in last year's Budget, FM Sitharaman's objectives included revenue mobilisation. Her idea was that taxpayers in the highest income brackets needed to be brought under the purview of more contribution to the nation’s development.
(With contributions by EY India)