A government-appointed task force earlier this month submitted its report to the Finance Ministry on new Direct Tax Code, which seeks to replace the existing Income Tax Act. Though its details are yet to be made public, news agency IANS, citing sources, has reported that the task force has proposed many changes to the Income Tax Act, which dates back 58 years. The task force has not recommended raising of the income tax exemption limit from the current level of ₹2.5 lakh but has suggested five tax brackets of 5%, 10%, 20%, 30% and 35%, the report said. Currently, there are three tax slabs: 5%, 20% and 30%.
The tax force on Direct Tax Code has not suggested any change in the 5% tax bracket or the current rebate of ₹12,500, says the report.
Those earning between between ₹5 lakh and ₹10 lakh per year, says the report, may have to pay lower 10% income tax, if the recommendations of this high-level tax force are accepted.
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%.
The panel, says the report, has recommended those earning above ₹20 lakh and till ₹2 crore to remain at current level of 30%. It has also proposed introducing a new 35% tax tax bracket of 35% for those earning above ₹2 crore in a year while doing away with the surcharge.
Currently, personal income is taxed at 5% for income between ₹2.5 and ₹5 lakh, at 20% for income between ₹5 lakh and ₹10 lakh, and 30% for an income of over ₹10 lakh. But those earning up to ₹5 lakh annually get a rebate of up to ₹12,500 on the taxes paid, effectively making income of up to ₹5 lakh tax-free.
Income tax slabs as recommended by the task force, as reported by IANS:
Up to ₹2.5 lakh - Exempted
Up to ₹5 lakh - 5% (rebate up to ₹12,500)
₹5 lakh to ₹10 lakh - 10%
₹10 lakh - ₹20 lakh - 20%
₹20 lakh to ₹2 crore - 30%
₹2 crore and above - 35%
Current Income Tax Slabs for individuals below the age of 60
Up to ₹2,50,000 - Nil
₹2,50,000 to ₹5,00,000 - 5%
₹5,00,000 to Rs. 10,00,000 - 20%
Above ₹10,00,000 - 30%
(Surcharge and health and education cess as applicable. In 2019-20 Budget, the government had increased surcharge from 15% to 25% on taxable income between ₹2 crore and ₹5 crore, and from 15% to 37% for income above ₹5 crore)