Institute of Chartered Accountants of India (ICAI) has proposed the introduction of an optional joint taxation scheme for married couples, as part of its pre-Budget consultation with the finance ministry, arguing that the move would better reflect India’s household realities and curb income-splitting practices.
In its representation, ICAI said that under the existing Income-tax framework, individuals are taxed separately, with each taxpayer entitled to a basic exemption limit of Rs 4 lakh under the default tax regime and Rs2.5 lakh under the optional regime. While this structure works well for dual-income households, a large section of Indian families continue to rely on a single earning member.
“This often creates an incentive to artificially transfer income to other family members to utilise individual exemption limits,” ICAI said, adding that an optional joint taxation framework could address this distortion.
Under the proposed scheme, married couples would be allowed to file a joint return of income and opt for joint taxation, provided both spouses have valid Permanent Account Numbers (PANs). Taxpayers would retain the choice to continue under the current individual taxation system or switch to the joint scheme.
ICAI has suggested that under joint taxation, the basic exemption threshold should be doubled and tax slabs broadened proportionately to reflect combined household income. As per the slab structure proposed by the institute, income up to Rs 8 lakh would be tax-free, with progressively higher slabs culminating in a 30% tax rate for income above Rs 48 lakh.
The institute pointed out that similar joint taxation models are already operational in developed economies such as the United States.
ICAI has also flagged concerns around the surcharge structure under the default tax regime. It noted that while tax rates have been rationalised, the surcharge threshold for individuals and Hindu Undivided Families (HUFs) continues to remain at Rs 50 lakh of total income. Since the default regime allows fewer deductions, total income tends to be higher, triggering surcharge even when tax liability is lower.
To address this anomaly, ICAI has proposed raising the surcharge threshold under the default regime to at least Rs 75 lakh. Correspondingly, under the joint taxation scheme, the surcharge threshold could be increased to Rs 1.5 crore, with graded surcharge rates thereafter.
The institute also recommended that in cases where both spouses are salaried employees, standard deductions should be available separately, and thresholds for alternate minimum tax should be proportionately enhanced.
ICAI said joint taxation would be a socially equitable reform, recognising the economic contribution of non-earning spouses as homemakers, while also boosting household purchasing power, domestic consumption and long-term savings.