Panel Proposes New Tax Slabs; Big Relief Expected for Taxpayers in Range of Rs 5 Lakh to Rs 10 Lakh

Taxpayers who make between Rs 5 lakh and Rs10 lakh per year could obtain a significant tax relief with the task force on the Direct Tax Code that proposes to reduce the tax rate by half to 10 per cent; two people reported aware of the matter under the condition of anonymity.

This is still a proposal, and it is not clear if the Centre will give the nod or not, as it is very focused on increasing its tax revenue.

Last week the task force had submitted its report and suggested that the government increase the number of tax slabs/tax brackets from 4 to 5, but decrease the tax rates for many.

It must be observed that there is no change in the 1st income-tax slab (up to Rs 2.5 lakh per year) that is zero tax payable. The 2nd slab (Rs 2.5 lakh - Rs 5 lakh), attracts 5 per cent tax. The task force wants to extend this slab (Rs 2.5 lakh - Rs 10 lakh) & have a 10 per cent tax rate while conserving the available full tax rebate for those receiving salary up to Rs 5 lakh.

One of the persons quoted above shared 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 per cent, and one can save up to Rs 37,500 per year under the proposed regime".

Presently people earning between Rs 5 lakh & Rs 10 lakh are paying tax at the rate of 20 per cent.

The proposed 3rd slab (Rs 10 lakh - Rs 20 lakh) will attract a tax of 20 per cent; the taxpayer may be benefitted with almost Rs 1 lakh if his / her income falls on the upper side, the 1st person told. Currently, people in this slab need to pay 30 per cent (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 per cent, and the 5th slab of Rs 2 crore & above will attract a 35 per cent. As of now, the rate is 30 per cent for people whose incomes fall in these slabs. If committee suggestions are acknowledged, then a person who earns Rs 2 crore will save around Rs 8.5 lakh.

Please refer the table below for the proposed new tax slab:

A government bureaucrat informed on the condition of secrecy that the report presented by the task force is yet to be reviewed & it isn't necessary to accept all the proposals.

To remember, 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 the economic needs of the country. Jitendra Chhabra, a chartered accountant, 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 per cent.

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".