Ahead of the Union Budget 2025, ASSOCHAM (Associated Chambers of Commerce and Industry of India) has recommended that Finance Minister Nirmala Sitharaman consider lowering personal income tax rates. This suggestion comes in light of the reduction in corporate tax rates which has made India’s corporate tax regime globally competitive.
Assocham highlighted that the highest marginal tax rate for individuals now stands at 42.744% (under the old tax regime) and 39% (under the new tax regime), which is significantly higher compared to corporate tax rates (25.17%) and personal tax rates in neighboring countries like Hong Kong (15%), Sri Lanka (18%), Bangladesh (25%), and Singapore (22%). This disparity, according to Assocham, has led to businesses opting for the corporate model (e.g., proprietorships converting to companies) due to the lower tax burden.
The chamber also pointed out the complexity of India’s income tax system with its two tax regimes and varying rates based on income sources and surcharges. The differential between personal and corporate tax rates is causing structuring decisions that favor the corporate format over the individual one.
Given these concerns, Assocham called for a simplified and more balanced tax system, recommending personal income tax reductions to encourage greater tax compliance and reduce the growing gap between personal and corporate tax rates.
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