Industry body Assocham has called for reduction in tax rates for individual taxpayers in the upcoming budget. The industry body has also urged the Ministry of Finance to ensure parity in tax liabilities between small firms, limited liability partnerships (LLPs) and the corporate sector.

In its pre-budget memorandum on direct tax to the Ministry of Finance, Assocham said, "The tax rates for the individuals may be reconsidered/reduced keeping in mind the reduced corporate tax rates and increased surcharge on individual taxpayers."

"Firms/limited liability partnerships should not be required to pay tax at higher rate than corporates as most small and medium businesses are organised as firms, LLPs and proprietorship," Assocham added in its memorandum.

Explaining the rationale behind the pre-budget demand, Assocham memorandum pointed out that the Finance Act of 2019 increased the surcharge on individual taxpayers. "With the increase in surcharge, the effective tax rates for individuals has gone up to 43% (in certain cases) which is significantly higher as compared with the corporate tax rates," the industry body said.

"The government has, vide section 115BAB, reduced the tax rate applicable to a domestic company to 15% (in case of new manufacturing company) and vide section 115BAA to 22% (in other cases), subject to the condition that such company should not avail specified tax deductions/exemptions. Benefit of reduction of tax rate has not been made available to firms/LLPs," the Assocham memorandum added.

It may be noted that the government has so far not provided any significant relief to the individuals on the income tax exemption or rate front in the last several years. By the time finance minister Nirmala Sitharaman presents her third full-year budget on February 1 next year, it will almost be eight years since the tax exemption limits were last rejigged.

After having won a thumping majority in the Lok Sabha in 2014 general elections, the then finance minister Arun Jaitley raised the minimum tax exemption limit from ₹2 lakh to ₹2.5 lakh. This was done with an aim to provide respite to the taxpayers who had faced high inflation during the Manmohan Singh-led UPA government.

In the later budgets, some tinkering was done. In 2017-18, tax rate for individual assesses in the income bracket of ₹2.5 lakh to ₹5 lakh was reduced to 5% from 10%. In 2018, a standard deduction of ₹40,000 was introduced by Jaitley and was later increased to ₹50,000 by Nirmala Sitharaman in her maiden budget in 2019.

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