Taxpayers who earn between Rs 5 lakh & Rs10 lakh in a year could get a major tax relief with the task force on the Direct Tax Code proposing halving the tax rate for them to 10 percent, informed two people aware of the issue on condition of anonymity.
Certainly, this is still a proposal and it is not clear if the Centre, which is very focused on increasing its tax revenue, will accept it or not.
The task force had submitted its report few days back and suggested that the government increase the number of tax slabs / tax brackets from 4 to 5, but reduce the tax rates for many.
It must be noted that there is no change in the 1st income-tax slab (up to Rs 2.5 lakh per year) that pays zero tax. The 2nd slab (Rs 2.5 lakh - Rs 5 lakh), which attracts 5 percent tax. The task force wants to extend this slab (Rs 2.5 lakh - Rs 10 lakh) & have a 10 percent tax rate, while preserving the available full tax rebate for those getting salary up to Rs 5 lakh.
One of the persons cited above told that “Effectively, people with income up to Rs 5 lakh will have to pay no tax. Tax will be charged for income between Rs 5 lakh & Rs 10 lakh at 10 percent and one can save up to Rs 37,500 per year under the proposed regime”. At present, people earning between Rs 5 lakh & Rs 10 lakh pay tax at the rate of 20 percent.
The proposed 3rd slab (Rs 10 lakh - Rs 20 lakh) will draw a tax of 20 percent; it may give a benefit of around Rs 1 lakh to a taxpayer if his / her income is on the upper side, the 1st person told. People in this slab at present have to pay 30 percent (the current slab is Rs 10 lakh & above). The board has proposed a 4th tax slab of Rs 20 lakh - Rs 2 crore that would attract a tax rate of 30 percent and the 5th slab of Rs 2 crore & above will attract a 35 percent. Currently, the rate is 30 percent for people whose incomes fall in these slabs. If the suggestions of the committee are accepted then a person who earns Rs 2 crore will be able to save around Rs 8.5 lakh.
New income tax slabs
Income Tax Slabs as proposed by the task force (Reported by IANS):
|
Up to Rs. 2.5 lakh |
Exempted |
|
Up to Rs. 5 lakh |
5% (rebate up to ₹12,500) |
|
Rs.5 lakh to Rs. 10 lakh |
10% |
|
Rs. 10 lakh – Rs. 20 lakh |
20% |
|
Rs. 20 lakh to Rs. 2 crore |
30% |
|
Rs. 2 crore & above |
35% |
Current Income Tax Slabs for People below 60 years
|
Up to Rs. 2,50,000 |
Nil |
|
Rs. 2,50,000 to Rs. 5,00,000 |
5% |
|
Rs. 5,00,000 to Rs. 10,00,000 |
20% |
|
Above Rs. 10,00,000 |
30% |
A government bureaucrat on condition of anonymity informed that the report presented by the task force is yet to be reviewed & that it isn’t necessary to accept all the proposals.
To recall, the government constituted the task force on the Direct Tax Code in November 2017 to evaluate the existing income-tax legislation & draft a new direct tax law in consonance with economic needs of the country. A chartered accountant, Jitendra Chhabra said “The recommendations have something for each taxpayer. However, exact benefits can be calculated after one is clear whether the panel proposed to remove cess & surcharge or not”. Presently, with surcharges & cess, an individual earning over Rs 2.5 crore pays tax at an effective rate of 42.7 percent.
Sanjay Kumar, senior director at Deloitte Haskins & Sells LLP said, “Even though there is a small reduction, it will put more money in people’s pocket. I guess it will push aggregate demand. This will also push up production & can act as the much needed boost for the economy. This is just one aspect as there are other encouraging news too”.
