Budget: Can India Switch to a Single Income Tax Rate

The tax slab rate system has been a cornerstone of India's tax framework since inception.

- Neeraj Agarwala

Inspired by developed nations, this progressive tax system is designed to promote fairness by imposing incrementally higher tax rates on higher income brackets. For instance, an individual earning ₹5 lakh pays tax at 5%, while someone with an income of ₹7 lakh is taxed 5% on the first ₹5 lakh and 20% on the additional ₹2 lakh, ensuring a degree of equity as those with higher incomes contribute more in taxes.

However, the introduction of dual tax regimes—one catering to individuals who claim deductions and another for those opting out—has led to significant complexity. Besides, special tax rates from 12.5% to 30%, applicable to various income streams such as capital gains and cryptocurrencies, further complicate compliance, making the tax landscape more challenging for taxpayers.

While progressive taxation is common in developed countries like the USA and UK, it faces criticism. In India, issues like bracket creep, where inflation pushes individuals into higher tax slabs without a corresponding real income increase, and the complexity of compliance with multiple slabs and deductions, have led to dissatisfaction, particularly among salaried individuals.