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FACT CHECK: Were personal income tax rates between 1971-72 as high as 93.5 percent?

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Summary

The income tax rates including Surcharge between 1971-72 were increased to an astonishing 93.5% over the earning of 2 lakhs.

In an attempt to take a jibe at Finance Minister Nirmala Sitharaman after the 2020 Budget presentation, Congress MP from Thiruvananthapuram, Shashi Tharoor shared an image showing the income tax rates in 1945. 

In the comments section of this post, one the user shared another image of showing the income tax rates between 1971-72, under the Prime-Ministership of Indira Gandhi. 

As per the image, between 1971-72, the Income-tax, including the surcharge on Rs 10,00,000 is astonishingly high at Rs 9,33,800.

The user tagged us to check the veracity of the rates presented in the image.

The truth behind the claim

In our investigation, we found the income tax including Surcharge presented in the image is true. 

Mrs. Indira Gandhi, then Finance Minister of India, announced the new personal income tax slab rates while presenting the Union Budget of India, also February 28, 1970, in New Delhi.

Here are the personal income tax slab rates for the Financial Year 1970-1971 (Assessment Year 1971-1972).

Income Tax Slabs for Individuals for the Financial Year 1970-1971 and Assessment Year 1971-1972

1. Income Tax Slab: Rs. 0 to 5,000 – Income Tax Rate Payable: Nil

2. Income Tax Slab: Rs. 5,001 to 10,000 – Income Tax Rate Payable: 10%

3. Income Tax Slab: Rs. 10,001 to 15,000 – Income Tax Rate Payable: 17%

4. Income Tax Slab: Rs. 15,001 to 20,000 – Income Tax Rate Payable: 23%

5. Income Tax Slab: Rs. 20,001 to 25,000 – Income Tax Rate Payable: 30%

6. Income Tax Slab: Rs. 25,001 to 30,000 – Income Tax Rate Payable: 40%

7. Income Tax Slab: Rs. 30,001 to 40,000 – Income Tax Rate Payable: 50%

8. Income Tax Slab: Rs. 40,001 to 60,000 – Income Tax Rate Payable: 60%

9. Income Tax Slab: Rs. 60,001 to 80,000 – Income Tax Rate Payable: 70%

10. Income Tax Slab: Rs. 80,001 to 100,000 – Income Tax Rate Payable: 75%

11. Income Tax Slab: Rs. 100,001 to 200,000 – Income Tax Rate Payable: 80%

12. Income Tax Slab: Rs. 200,001 and above – Income Tax Rate Payable: 85%

Surcharge: A surcharge of 10% on income tax amount was payable if total income exceeds Rs. 5,000.

By doing this, the government increased the marginal tax rate by 11 percentage points to 93.5 percent on all incomes above Rs. 200,000. This meant that for every Rs. 100 earned above Rs. 200,000, a citizen could take home just Rs. 6.50. When the surcharge of 10 percent was taken into account, the maximum marginal rate for individuals was a mind-boggling 93.50 percent

The following chart shows the highest income tax between 1950-93. 

According to an ORF report, following the Congress split in 1969, this move was done to attain a “pro-left image.”

"This was completely in tune with a politics that saw wealth creators as parasites and high income earning and tax-paying citizens as evil and believed in the distribution of wealth without creating it. The intellectual framework for high taxes was set by Finance Minister C.D. Deshmukh two decades earlier in his 27 February 1953 Union Budget speech, where he set up the Taxation Enquiry Commission under the chairmanship of John Mathai, with six other members, including V.K.R.V," says one of the excerpts of the report. 

In 1973-74 the highest tax rate applicable to an individual went up to an astronomical level of 97.50 percent.

In conclusion, the income tax rates including Surcharge between 1971-72 were increased to an astonishing 93.5%, over the earning of 2 lakhs. Hence, the claim is true.

Liberalisation of Personal Income Taxation

The last wave of reform in personal income taxation was initiated on the basis of the recommendation of the Tax Reform Committee, 1991. The tax rates were considerably simplified to have only three tax brackets of 20, 30 and 40 percent in 1992-93. Further reductions came in 1997-98, when the three rates were brought down to 10, 20 and 30 percent.

Budget 2020 has proposed to introduce new income tax slabs with reduced rates for those foregoing exemptions and deductions under a "simplified tax regime". As per the budget proposals, if a taxpayer opts for the new regime, then his income will be taxed as per the following tax slabs:


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