We are Indirectly Telling Corporates to Raise Wages

Finance and revenue secretary Tuhin Kanta Pandey tells Parth Singh why broadening the tax base is important. Edited excerpts

- Parth Singh

What is the economic rationale behind the direct tax changes?

From an economic perspective, we need to restructure the system. With the introduction of a new income-tax Bill, we aim to make the structure more forward-looking. Our tax rates now follow a gradual progression—5%, 10%, 15% and 20%, whereas earlier, there was a steep jump from 20% to 30%. We introduced the 25% slab to smoothen this transition.

The Rs 0–3 lakh slab was fixed long ago. If we revise it to Rs 0–4 lakh, many taxpayers won’t even need to file returns.

This is a structural tax reform, providing a stable framework that doesn’t require annual changes. We believe in giving money back to taxpayers, addressing the perception of excessive taxation. The idea is for people to spend, save and invest, which in turn stimulates the economy.

Isn’t this contrary to the strategy of bringing more people into the tax net?

The key point here is that we recognise the importance of broadening the tax base rather than repeatedly taxing the same individuals. If the government has set an exemption limit of Rs 12 lakh, it reflects a conscious decision not to tax incomes below that threshold.

The focus should be on bringing new taxpayers into the system and ensuring that incomes are rising. This is why we are also indirectly telling corporate to raise wages. When we provide tax benefits to businesses, we also expect them to pass on some of those gains to their employees.