The Government has promised to introduce a social security tax that will be levied on the earnings of those earning between 1,000 rupees and 5,000 Rs.
The tax will be imposed in April and the amount will be paid in instalments over a period of six months, Finance Minister Arun Jaitley has said.
The Finance Ministry is expected to submit its final budget report by March 1, which will be the date on which the government will submit its proposal for the tax.
In a speech in the Assembly on Monday, Jaitleysaid that “taxes like the one proposed are not only to pay for the general government but also to generate revenue from different sections of society”.
The government has proposed to impose a tax on the income of individuals earning less than 5,500 rupees (about US$2,600) annually, the income tax and income tax deduction rates and the capital gains tax on earnings above 5,800 rupees, and a new income tax credit on income above 5 and above 6,000.
These are the same tax rates that are being introduced for the first time in India.
The government will also introduce a new tax on capital gains, with a new maximum income tax rate of 5,600 per annum.
The government’s proposals are likely to spark anger among social activists who are opposed to the imposition of the tax, as it will increase the tax burden on the poorest and most vulnerable sections of the population.
Critics of the proposal argue that the government has no justification for imposing a tax that it has no means to collect.
“The government will be in a financial hole, which is very unfortunate,” said Manoj Kumar, a social activist and the founder of the Centre for Social Change.
In recent years, the government, through a series of tax cuts, has sought to boost the incomes of the middle and lower classes.
In February this year, it cut the corporate income tax from 13 per cent to 9 per cent, the capital gain tax from 15 per cent in January to 8 per cent on income over Rs 1 crore and the income-tax deduction rate from 14 per cent of gross income to 8.5 per cent.
However, the Finance Ministry has also made the income exclusion provision mandatory, with the government seeking to ensure that no person, regardless of their status, is denied benefits for any reason.
At a time when the government is grappling with the worst drought in India’s history, it has also been looking to raise funds for projects such as construction of highways and new airports.
In recent months, the Narendra Modi government has sought an additional Rs 3,600 crore to be spent on infrastructure projects in the coming financial year, which would amount to a massive injection of cash into the economy.
The government also recently announced that it is likely to increase the monthly retirement age to 65 from 66.
The tax proposal, if adopted, would be the first of its kind in India and would be a first for the country.
India has had a long-standing income tax regime, but the country is yet to introduce any new taxes.
It also has no statutory income tax for the richest 1 per cent or 2 per cent earners.
Last month, the Central Statistics Office said that the average monthly net income of the poorest 5 per cent (Rs 10,000) in India is Rs 4,200.