A high-level tax force set up by the government submitted a report to the Finance Ministry on new Direct Tax Code, earlier this month. This report brings in radical changes to the existing Income Tax Act.
According to this Tax Code, if implemented, the people earning between Rs 5 lakh and 10 lakh per year may have to pay 10% income tax lesser as compared to the present Income Tax slab. There’s a lot more to learn about this proposed tax schemes. For starters, the team has suggested five tax brackets and currently there are 3.
The Suggested Direct Tax Code & How Will It Affect You?
The government-constituted task force, led by Central Board of Direct Taxation (CBDT) member Akhilesh Ranjan, submitted its report to Finance Minister Nirmala Sitharaman on August 19 but this hasn’t been made public yet. However, it has come to our notice that the task force has proposed many changes to the Income Tax Act, which dates back 58 years.
Safe to say, under these changes, the task force has nowhere mentioned an increase in the income tax exemption limit from the current level of ?2.5 lakh. In fact, they have suggested five tax brackets of 5%, 10%, 20%, 30% and 35%, while currently there’s a bracket of three taxes. Currently, there are three tax slabs: 5%, 20% and 30%.
The proposals include lowering the personal income tax for those earning between Rs 10 lakh and Rs 20 lakh per year lesser by 10%. The tax force has also recommended lowering of the personal income tax for those earning between ?10 lakh to ?20 lakh per year to 20%.
Those earning an annual income up to Rs 5 lakh, however, will get a rebate on the taxes paid, as was announced in the interim budget of 2019 by then interim finance minister Piyush Goyal, according to sources. This effectively means that those with an income of up to Rs 5 lakh will be charged zero tax.
For the ones above Rs 20 lakh, till Rs 2 crore, there shall be no change in tax rates for them and it’ll stand at the previous rate of 30%. It has also proposed introducing a new 35% tax bracket for those earning above ?2 crore in a year while doing away with the surcharge.
Listicle of the Above Tax Data for Better Understanding
Current Income Tax Slabs
- 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%
Income Tax Slabs As Recommended by the Task Force
- 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 and above – 35%
The Reason behind this Direct Tax Code
The rationalisation in tax slabs has been proposed to boost consumption and revive the economy by putting more money in the pockets of the middle income group. It is aimed at simplifying income tax provisions and improving tax certainty.
Some of the other recommendations which the task force has made include doing away with dividend distribution tax and removing minimum alternate tax. It has also recommended that the government discourage surcharges and the task force is of a view that if levied, surcharges should be temporary in nature.