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India should consider withdrawing a property taxation system that allows people to maximize their tax-free income, the OECD has said in its annual economic report for the country.
In much of the country, any individual who is born Hindhu, Sikh, Jain, or Buddhist can form a Hindu Undivided Fund if they are married. Those with substantial property income can cut their tax liabilities by filing both an individual and HUF return to double their tax-free income.
While some states already refuse to recognize the system, the OECD said that withdrawing the facility across the country would allow "fairer taxation of capital income" and "enable the introduction of inheritance and gift taxes," the OECD said.
The report also criticized the current mix of value-added and sales taxes as "inefficient" and echoed a recent IMF report in calling for them to be replaced by the long awaited Goods and Services Tax.
"Providing more certainty for potential investor regarding future tax rules, their interpretation and application, is also crucial to creating an attractive environment for foreign investment," it said.
The OECD added that country needs to make income and property taxes more "growth-friendly and redistributive."
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