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NEW DELHI: Is the government planning to reduce personal income tax? The step, if implemented, can be termed logical, especially after Bibek Debroy 's, the head of Prime Minister's Economic Advisory Council, recent comment. "Now that the corporate tax has come down, it is certain that the government will sooner or later reduce the income tax rate also," says Debroy. The riders, he says, are that low rates may come with no exemptions and the rates "will have an element of progressivity about them."

It's needed: "Aligning the top personal income tax rate to the corporate profit tax rate at 25%, with all exemptions eliminated, would curb corruption and minimise tax disputes ... The expansion of the tax base will offset the effect of the reduction in the tax rate," writes former Niti Aayog vice-chairman Arvind Panagariya.

It's a recommendation: The task force set up to overhaul the income tax laws that submitted its report in August has recommended drastically lowering rates and rationalising tax slabs (to a 5%, 10% and 20% structure, against the prevailing 5%, 20% and 30%, reports say).

It's not impossible: "We have to look at revenue trend, budgetary requirements and fiscal deficit before we take a decision on that (income tax rates)," says revenue secretary Ajay Bhushan Pandey.

It's about demand: A cut in income tax is about putting more money in the hands of the consumer and boost demand to come out of the slowdown. "The Indian economy is going into a tailspin; it is the time when you don't worry so much about monetary stability and you worry a little bit more about demand ... I think demand is a huge problem right now in the economy," says Nobel laureate Abhijit Banerjee.

What will it cost? According to a Bank of America-Merrill Lynch report, reworking the tax slabs as reported in the media would cost about Rs 1.75 lakh crore, of which Rs 1 lakh crore will be borne by the Centre and Rs 75,000 crore by states in line with the 58:42 devolution ratio.

