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GST Tax Credit for Individual Income Tax Payers - can be Reality

May 02, 2017

W.e.f 1st July, 2017 – GST going to be implemented. In the History of India since 1947, its first time to implement a Unified Indirect Tax Mode. All the Goods and Services are going to be taxed under 1 umbrella of Tax method instead of current (VAT, Excise, Customs. etc)

Aadhaar to be Mandatorily Linked to PAN

As per Finance Act, 2017 – Every Individual PAN needs to be linked to Aadhar Number. Even though SC has taken the case for making it non-mandatory. Government is Keen on making Aadhar the unique ID integrated all Fractured Government Services across board.

How about Getting Tax Credit on Indirect Expenses by Individual Income Tax Payers ?

Yes, it will be a Dream Come True moment for Salaried Class Tax Payers – ‘ Who Pay Tax on Income and Expense’. Double Whammy.

Example: Assume 30% Tax bracket

Salary Income Rs.100

Income Tax Rs.30

Net Income post tax Rs.70

Buy Goods/Services – GST Rate(18%) Rs.9 (If amt spent is Rs.50, it include 9 tax)

Effective Income Rs.61

Can there be a way to credit Rs. 9 being the GST to Tax payers? Yes – With advent of GST – 1 Nation 1 Tax and DIGITAL transaction through Aadhar Biometric / Card Based transaction –(which to be linked with adhar). Government can easily Track the Expense Transactions for each Aadhar Number . Since PAN is linked to Aadhar, like TDS Form 26AS – a new Segment as Tax credit can be mentioned, which can track all the Expense(GST) part in this.

May be based on certain CAP / Limit – Government can consider providing Tax credit adjustment to the Total Income Tax payable by the Individual. This process will promote more consumption / be a fair practice for all honest tax payers.

Tax Credit CAP*

Upto 2.5 Lacs -100% GST Tax credit

2.5 Lacs to 5 Lacs- 75% GST Tax credit

5 to 10 Lacs 50% -GST Tax Credit

10 lacs above 25%- GST Tax Credit

*Thereby Government can maintain same Rationale like Tax Rate..higher the income lower the tax credit.

Example: Assume 30% Tax bracket

Salary Income Rs.100

Income Tax Rs.30

GST Tax Credit Rs.9

Net Income Tax Payable Rs.21

This article was first published on LinkedIn by Karthik Narasimman

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