Global Taxation Models
Joint taxation is a well-established principle in international tax policy, observed in several developed and emerging nations. Countries such as the United
States and Germany permit married couples to file joint tax returns. This approach considers the household as an economic entity, rather than treating each spouse individually. India has an opportunity to modernize its tax system by introducing an optional joint taxation regime. Such a regime would mirror contemporary household realities, offering a significant evolution of the income-tax framework. While the design must be carefully tailored to India's fiscal priorities and socio-economic conditions, international experience indicates that this can boost equity, neutrality, and taxpayer confidence. This initiative would represent a progressive step for the Indian tax system.
Standard Deduction Approach
In the context of married couples earning income under 'Salaries,' it is proposed that the standard deduction should be independently available to each spouse when calculating their salary income, even if they choose joint taxation. This is important to uphold tax neutrality between single-earner and dual-earner households, ensuring that families with two working spouses are not disadvantaged by opting for joint taxation. This approach maintains a level playing field, preventing the joint taxation option from creating financial disincentives for households with multiple income earners. It underscores the importance of a tax system that does not inadvertently penalize certain family structures.
Surcharge Rationalization
Additionally, the government may consider subsuming the surcharge into the base income-tax rates to simplify and make the tax system more predictable. This would streamline the tax structure, making it easier for taxpayers to understand their obligations. Simplifying the tax system could enhance compliance and reduce the administrative burden on both the government and taxpayers. Such a move is in line with the broader goal of making the tax system more efficient and user-friendly. Simplification may involve the re-evaluation of surcharge thresholds to determine their continuing relevance and impact on various income brackets. This will require a thorough assessment of the implications of the change to safeguard revenue and address potential unintended consequences.
