Budget 2025: 'Personal tax should be reduced like corporate tax', Assocham says in its wishlist

Budget 2025 expectations: The industry body Assocham has stated that Finance Minister Nirmala Sitharaman should consider reducing personal income tax rates in the Union Budget 2025. Assocham has pointed out the significant difference between personal and corporate tax rates.

In a note to the Finance Minister, the industry body highlighted that corporate tax rates have decreased over the years, leading to a widening gap between personal and corporate taxes. According to Assocham, the highest marginal rate for individuals has now risen to 42.74% in the highest slab and 39% in the new tax regime, compared to the regular corporate tax rate of 25.17%.

"As corporate tax rates have become competitive on a global scale, in order to promote greater tax compliance among individuals, Assocham recommends a similar reduction in personal tax rates," the organization stated.

The high personal tax rate for individuals in India is exceptionally high compared to other countries. For example, the maximum rates of personal income tax in Hong Kong is 15%, Sri Lanka is 18%, Bangladesh is 25%, and Singapore is 22%. The significant gap in tax rates between individual and corporate taxes has led to many individuals restructuring their businesses in favor of the corporate model (for example, transitioning from a proprietorship to a company format).

According to Assocham, the maximum marginal tax rates for individuals are 42.744% under the old tax regime and 39% under the new tax regime, both of which are substantially higher than the corporate tax rate as well as those in other neighboring countries.

“With two tax regimes in place, income tax for individuals has become very complicated. Further, there are different rates of taxes depending upon the source of income.  In addition to this, different rates of surcharge are applicable depending upon the total income and capital gains element in the total income both under the old and new tax regime,” it says. 

Tax collection in India

Tax collection in India experienced a significant surge of 76% between the years 2018-19 and 2022-23. However, the share of taxes collected from the corporate sector only slightly increased to 24.45%. In 2018-19, personal income tax collection, including Securities Transaction Tax, amounted to Rs 4,73,179 crore. By 2022-23, this figure rose to Rs 8,33,307 crore according to data from the Central Board of Direct Taxes.

Meanwhile, corporate tax collection increased from Rs 6,63,572 crore in 2018-19 to Rs 8,25,834 crore in 2022-23. Despite this increase, corporate taxes have only grown by 2.3% in absolute terms from 2014-15 to the 2024-25 budgetary estimates. In comparison, income taxes have seen a growth of 4.5% during the same period. This data also shows that the year-over-year percentage increase in corporate taxes exceeds that of income taxes. The government has recently made efforts to decrease the proportion of corporate tax contribution to the Gross Tax Revenue.